Chapters
Quick summary
Two choices set the price of a : the you lock in, and the date it runs out. A further-out date is insurance — more time for the trade to work, and like all insurance you pay more for more cover.
The cost of that is . Your contract loses value simply because time is passing, and it accelerates near the end. Her question makes it obvious: who wants to buy something that expires in ten minutes? Nobody. So match the to your actual life — if you cannot watch the screen today, do not hold something that dies today.
Lesson 3 of 5
Strike, expiration and the clock
Time is not free. You are buying it, and it is draining while you watch.
Time is something you buy. Theta decay is the bill.
Words she uses
0DTE
Zero days to expiration. The contract dies at today's closing bell.
Like this: A coupon that expires at closing time tonight. Not tomorrow. Tonight.
Theta decay
Your contract quietly losing value just because time is passing.
Like this: An ice cube in your hand. Do absolutely nothing and it still gets smaller.
Out of the money
The price has not reached your strike yet, so the contract has no value of its own.
Like this: A voucher for $50 off a $30 coat. A real voucher. No use to you today.
In the money
The price has passed your strike, so the contract is worth something on its own.
Like this: A voucher for $50 off a $200 coat. Worth walking into the shop with.
What to take away
- A longer expiration is insurance, and you pay for insurance.
- Theta decay: nobody wants to buy something that expires in ten minutes.
- Her habit is a strike just outside the current price.
- Further out = cheaper, and needs a bigger move to pay.
Watch time eat it
Same contract, same strike, nothing about the company changes. Drag the days remaining and watch what time alone does to the price.
Check yourself
Answer all of them to unlock the next one. Getting one wrong is fine — the explanation is the point.
1She compares choosing a longer expiration to buying something. What?
Insurance. More time for the trade to go your way, and like any insurance you pay more for more cover.
2It is 3pm. You hold a contract that is not working. What is happening to its value?
Theta decay, at its most brutal. Her question: who is going to buy something that expires in ten minutes? Nobody.
3You buy calls and cannot watch the screen until tomorrow. What does she say?
Match the expiration to your actual life. If you are not watching, do not hold something that dies today.
4A stock is $300. You buy the $400 strike instead of the $302 strike. What have you bought?
Further is cheaper for a reason. It moves slower and needs far more to happen before it pays.
0 of 4 answered
Answer the questions above to carry on.
