Expected Time Value Decay of Options: Implications for Put‐Rolling Strategies

George F. Tannous and Clifton Lee‐Sing

The Financial Review, 2008, vol. 43, issue 2, 191-218

Abstract: Assuming the underlying asset price remains constant, previous studies show that the time value of an option decays gradually at a rate that accelerates over time and peaks at the expiration date. Thus, a significant portion of time value is lost in the four weeks leading up to expiration. This paper shows the time value of currently at‐ or near‐the‐money options should be expected to decay at a rate that decreases over time. The time values of options that are currently deep‐in‐ or deep‐out‐of‐the‐money are expected to initially rise and then resume the normal decay pattern.

Date: 2008
References: Add references at CitEc
Citations: View citations in EconPapers (3)

Downloads: (external link)
https://doi.org/10.1111/j.1540-6288.2008.00191.x

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:bla:finrev:v:43:y:2008:i:2:p:191-218

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0732-8516

Access Statistics for this article

The Financial Review is currently edited by Cynthia J. Campbell and Arnold R. Cowan

More articles in The Financial Review from Eastern Finance Association Contact information at EDIRC.
Bibliographic data for series maintained by Wiley Content Delivery ().