As can be seen from the diagram, half of the time decay of this six month option occurs within the last 60 days of the option's life. Most options traded have fewer than three months to maturity. In other words, the most trading volume in the options market relates to options subject to the rapid time decay at the far right of the diagram in Figure 1. Another point worth mentioning is that while the diagrams depict the time decay for call options only, put options follow essentially the same pattern. Option Strategies Time decay has implications for investors wishing to trade options.
Time erodes the total value of an option, all else being equal, which favours sellers.
The investor may even lose money if the stock increases, if the increase isn't large enough to offset the time decay. It is possible to be correct in predicting a stock price movement yet still lose money buying options for instance, if the increase isn't large enough to make up for time decay or if the movement fails to manifest itself prior to the option's expiration date. When buying options, investors should buy value, just as they do for stocks. They should also select options with five or six months to maturity rather than 30 to 90 days, since options in the latter group are subject to a sharp drop in time value as expiration approaches. For sellers, time decay works in their favour.