If the options underlying is not moving and implied volatility stays the same, the options will loose money every day.

Options Greeks: Theta For Time Decay - Articles - SteadyOptions

Later on you will buy the options back for a much smaller price you bought it for. Of course it is not as simple as opening a position and waiting for the profits to accumulate.

Nevertheless, these strategies work well when the markets trade within a price range. The beautiful characteristic of these versatile option strategies is that they can be used by the bullish or bearish investor as well as by the market-neutral trader.

Let us examine two strategies. Calendar spread is used for stocks with low implied Volatility. We hope that volatility is increasing.

While iV is low you buy an out-of-the-money calendar spread. If implied volatility increases you close the position by selling the calendar spread. If the stock price does not conform to your expectations, then the spread will lose value as the December call expire and become worthless. You will close the Jan call that the call is more worth than what you have paid for the spread. Just as you can shift the strike price of a calendar spread to compensate for your market bias, you can do the same thing with an iron condor.

In the following example, assume that an SPX index is trading at and that you are bearish over the near term.

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The following is just one example of an appropriate iron condor. We sell the short strikes 1 standard deviation away of the current index price.

We choose options around 45 day to expiration, this gives us enough time to adjust when necessarily. Because you sold options far away it does not happen easily that you position profit comes in danger. When time passes the options decrease in value. Better an profit in your pocket than a higher chance to loose your credit. Your email address will not be published. Sell Option Premium Selling Options the most Profitable Way. Using Positive Theta Decay Strategies March 28, Richard Forest Leave a comment.

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