Futures Options - Theta or Time Decay

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The speaker discusses the time value of options, or theta.  Theta is the value associated to the time component in an option.  An option with a greater term to expiration will have theta representing a higherThe speaker discusses the time value of options, or theta.  Theta is the value associated to the time component in an option.  An option with a greater term to expiration will have theta representing a higher percentage of the option value.  He walks through an example of a trader which purchased deep out of the money calls to take advantage of higher prices in months to come.  The problem with this strategy is that the majority of the option premium is theta, or time.  As time starts to pass, theta will decay and therefore so will the price of the option.  A dramatic move will need to happen to even break even in this type of situation. 

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Tim Ord is a technical analyst and expert in the theories of chart analysis using price, volume, and a host of proprietary indicators as a guide...

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