What Is Time Decay? Time decay is a measure of the rate of decline in the value of an options contract due to the passage of time. Time decay accelerates as an option’s time to expiration draws closer since there’s less time to …
What Is “In the Money” (ITM)? “In the money” (ITM) is an expression that refers to an option that possesses intrinsic value. ITM thus indicates that an option has value in a strike price that is favorable in comparison to the …
What Is an Option Premium? An option premium is the current market price of an option contract. It is thus the income received by the seller (writer) of an option contract to another party. In-the-money option premiums are composed of two factors: …
What Is Out of the Money (OTM)? “Out of the money” (OTM) is an expression used to describe an option contract that only contains an extrinsic value. These options will have a delta of less than 50.0. An OTM call option …
What Is Implied Volatility (IV)? The term implied volatility refers to a metric that captures the market’s view of the likelihood of changes in a given security’s price. Investors can use implied volatility to project future moves and supply and demand, and …