Been trying to understand how time affects option prices but getting confused by all the formulas online.
Saw some traders talking about time decay eating their profits. How do you actually calculate this stuff?
Most explanations seem too complicated for someone still learning the basics.
Time decay destroyed me when I started. Bought EUR/USD calls with 2 days left and watched them die worthless - even though I was right about direction.
Now I won’t touch anything under a week. That value bleeds fast, especially the last 24 hours.
Lost 40% of my account learning that lesson, but now I respect expiration timing.
Time decay kills. Lost $180 on what should’ve been a winning trade because I didn’t respect how fast options lose value.
Time value is the option price minus the intrinsic value. For example, if a call option costs $3 and the stock is $2 in the money, the time value is $1. As expiration approaches, this value decreases. I typically avoid options with less than 30 days unless I anticipate rapid movements.
Understanding this concept is crucial. Time decay can hurt you when buying options, but it can benefit you when selling.
Use this formula: Option Price - Intrinsic Value = Time Value. Monitor theta values on your trading platform. Options lose 30-50% of their time value in the last week before expiration.
Think of time value like ice melting in the sun - it disappears fast as expiration gets closer.
Most trading platforms show theta and other Greeks that tell you how much value you’re losing daily. Check your settings to make sure they’re visible.
Stick to trades with at least two weeks left unless there’s big news coming.