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Option Theta Decay Explained And How To Take Benefit of Theta Decay

Save Money on Options and Futures Trading

Traditional brokers take away a lot of money by charging high brokerage in each lot traded, however this broker does not charge for each lot. If you trade 5/10/100 lots in a single order they charge only Rs.20/- for each order traded irrespective of lots being traded at different times. Same for exiting. If you exit all 5/10/100 lots in a single order your total brokerage comes to Rs.40/-. And they do not charge anything for buying & selling stocks. It takes 5 minutes to open an account online. Click here and Open Free Account with them today >>

Option theta is very important indicator for traders whether you want to buy or sell options. It helps to predict how over time the price of the option will change.

Theta is time value of options, means options expire on a certain date so their life is limited. Time value is built in the premium of the option, of course it ends when the option expires on the expiry date. If you want to read Option Greeks in details you can read here.

Time decay accelerates as an option nears its expiration date. It is the fasted on the last day of its life. Option cannot be traded once the market closes on its expiry date. All the traded contracts are settled for profit and losses on this date.

See this image to understand the graph of time premium expiration w.r.t time. Time decay is fastest near the expiry day. This is one reason why traders sell options near its expiry.

The rate of return on investment will be faster if it expires fast. Therefore many traders prefer to sell weekly options rather than monthly options. I have a course on weekly options that will teach how to sell weekly options near expiry with hedge so that the risk is highly reduced in a black swan event.

Should you sell index or stock options?

Stocks are very volatile in nature. Selling options near the expiry may get very risky as the premium you get will not be sufficient to overcome the trading costs. Therefore if you want to sell stock options they should be expiring in more than 15 days else you will not get enough premiums to take the risk of selling options.

In my Conservative Option Course there is a stock option selling strategy that gives minimum 15000 per month without taking too much risk.

In the US leap options are very popular. Leap options are options expiring very far of months like 6 months. However in India there is hardly any volume in stock options in the next month. Even if you are able to sell next month’s option you will find it difficult to get a buyer when you want to book profits. Therefore you can sell stock options for the current month with hedge.


Save Money on Options and Futures Trading

Traditional brokers take away a lot of money by charging high brokerage in each lot traded, however this broker does not charge for each lot. If you trade 5/10/100 lots in a single order they charge only Rs.20/- for each order traded irrespective of lots being traded at different times. Same for exiting. If you exit all 5/10/100 lots in a single order your total brokerage comes to Rs.40/-. And they do not charge anything for buying & selling stocks. It takes 5 minutes to open an account online. Click here and Open Free Account with them today >>

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Some Basic Rules To Trade Options For Beginners

About the author: I started trading stock markets since 2007. However my first 3 years were losses. Then I dedicated almost 1 year on studying, researching, paper trading options and learned a lot in that time. Since 2011 I am trading Nifty options profitably. Call me if you need any help trading options on 9051143004.

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