Wednesday, May 14, 2014

Tasty trade has a great market measures segment on the 1/13/2014 episode where they explain why theta decay is steepest at around the 45 days to expiration. For a while, I thought how is that correct. What I was picturing was the ATM decay graph shown in most options learning.

The ATM options has steeper decay curve much closer to expiration (i.e, with fewer days to expiration DTE), whereas the steepest part of OTM option is around the 45 days to expiration DTE.



This chart below shows the decay for the ATM, 70% OTM, and 90% OTM options. 


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