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.
You Can Read More On My Site
WhatsApp or Call me: 9051143004
If you have any question you can contact me.
You can read about me here and my trading mistakes here.
Dilip Shaw, Founder
Copyright Infringement: Any act of copying, reproducing or distributing any content in the site or newsletters, whether wholly or in part, for any purpose without my permission is strictly prohibited and shall be deemed to be copyright infringement.
INCOME DISCLAIMER: Any references in this site of income made by the traders are given to me by them either through Email or WhatsApp as a Thank You message. However every trade depends on the trader and his level of risk taking capability, knowledge and experience. Moreover stock market investments and trading are subject to market risks. Therefore there is no guarantee that everyone will achieve the same or similar results. My aim is to make you a better & disciplined trader with the stock trading and investing education and strategies you get from this website.
DISCLAIMER: I am NOT an Investment Adviser (IA). I am an Authorized Person (AP) of a Stock Broker. In other words I am a sub-broker. I DO NOT give tips or advisory services by SMS, Email, or WhatsApp or any other forms of social media. I strictly adhere to laws of my country. I only offer education for free on finance, risk management & investments in stock markets through the articles in this website. You must consult an authorized Investment Adviser (IA) or do thorough research before investing in any stock or derivative using any strategy given in this website. I am not responsible for any investment decision you take after reading any article in this website. Click here to read the disclaimer in full.