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  • Writer's pictureMatt DeLong

Why do majority of long options lose money?

The short answer is “time decay”.

If you buy a “call option” on a stock that expires 1 year from now, for $30, that stock has to move significantly for that option to outrun the cost you pay for the option. It the underlying stock goes from $100 - $130, you have $30/worth of intrinsic value, but hold on a second, your $30 is now worth $30 — big deal. It has to move even further for a profit to occur.

The longer the timeframe/expiration, the more the option will be priced. On the flip side, the person that sold that option has time decay on their side. If the price goes sideways for a year, they keep your option premium, if it goes sideways for a year, you lose 100% of the option premium… assuming it expires and you don’t sell it prior to the expiration date.

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Oct 13, 2023

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