Hi If I am playing long calls & puts and <b>I plan to hold option contracts for two weeks, would I be better using options that have 2 weeks left to expiry or options which have longer? - which would be affected least by time decay? Of course longer out options will be more expensive but please answer with respect solely to time value. I hear conflicting advice, some say time decay is greatest in the last 30 days others say this is more like last 14 days, other says this is only true for ATM options. Given my simple strategy outlined above how far out should I be buying my options for them to be affected least by time decay? Thanks, Ben
The longer the expiration the less is time decay. But what is your overall strategy/expectations? Do you plan to hold until expiration or possibly exit earlier? Is there any event pending before expiration (earnings, FDA approval, etc.)?
Hey, thanks for the reply I plan to sell before expiry, I am just trading premium with long calls & puts. I don't plan to hold over upcoming news events, so volatility should be steady whilst I hold the position. <b>Holding positions for this long is new to me. Can I realistically expect to hold options for 2-4 weeks and expect the premium to rise if the underlying rises - will the time value not erode any gains over that time?</b>
1. based on this question you should absolutely not trade options 2. go out into the woods, take a leak straight out into the woods, and closely watch the stream of your leak, thats the time decay graph of an option.
I assume that you're talking about a straddle or a strangle. If that's the case and you want to hold your position for 2-4 week than buy it with at least 2 months until expiration. You straddle will gain if the underling stock moves within your time frame and that move is big enough. It may also gain if the IV rises. However, time is your enemy. That's why choosing longer expiration date is necessary. It would help if you provided a specific stock you want to trade options on.