However, there is a strategy that allows even small traders to write options to take advantage of time decay without exposing themselves to unlimited risk. This strategy is referred to as selling a vertical credit spread. By also buying a further out-of the money option, the trader is not exposed to the unlimited risk associated with selling naked options. The primary disadvantage of this strategy is that profit potential is limited to the difference between the price of the option sold and that of the option bought. In addition, downside risk usually exceeds the profit potential.
Options lose all of their time premium by expiration, which is referred to as time decay.
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