Learn About Extrinsic Value

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The Skinny on Options: Abstract Applications

The Square Root of t

The Skinny on Options: Abstract Applications

Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

The one, single aspect of option pricing that arguably trumps all is that of time decay. By focusing on the natural decrease in extrinsic value over time, we are able to position ourselves to be successful, irrespective of market direction.

Well today, we learn that the time variable (square root of t) that is found in so many of the models and equations that we lean on every day supports not only the natural decay of option prices, but also our preference for entering trades at 45 DTE.

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