Options question

Jan 13, 2020 10 Comments

Why do options with closer strike date appreciate or fall more than options with later strike date on same stock price movement?

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TOP 10 Comments
  • Google
    yobloop

    Go to company page Google

    yobloop
    Is this not obvious? Time is money
    Jan 13, 2020 1
  • The value of an option is a combination of factors, but one of them is time. The more time till expiration, the more opportunities for the share price to change to the point where option becomes "in the money" so greater time means more option value. Think of it this way for an out of money option, strike price is 50, stock price is 30. So it is out of the money. If the expiration were this friday, it would expire worthless, so since there is so little time left, the option will have very little value (and the less volatile the stock. The less value it has). Now if the expiration were still two years away, even though it is out of the money now, it has two years to get in the money, so there is potentially substantial option value there, again dependent on the volatility of the stock and a few other factors) and to your original question, when so little time is left, every day has a bigger impact on the likelihood of getting in the mo ney so every day has a bigger impact on value of the option
    Jan 13, 2020 0
  • Read the chapter in Hull about options, it goes through all the basic intuition pretty well.

    As the expiration approaches, the value approaches the expiry payoff value, where delta is a step function.
    Jan 13, 2020 0
  • Time decay my main bro
    Jan 13, 2020 1
  • Belvedere Trading
    JimSimons

    Belvedere Trading

    JimSimons
    If there it less time until expiration there is less probability that the underlying will reach the strike price.
    Jan 13, 2020 0