What is Option time decay?

When choosing options, you must choose your strike price. The strike price is either in the money (ITM) or out of the money (OTM). Your choice radically changes the payoff and risk of the trade. If you take the top trades (in ROI), most will be OTM options. But while these options offer high delta/cost ratios – that is, currency pair at a low cost – they are higher risk for a buyer.

The risk comes from the higher probability of the option expiring worthless. You can survive this and reduce the risk by choosing In-the-Money (ITM) options. ITM options are preferred when don’t have a price target and the immediate movements in the currency mean more when you’re holding ITM options.

Deep ITM options carry less risk in terms of time value. It is a suitable vehicle If you want to trade like a spot fx transaction and continue trade in spite of being wrong several times. Important is the choice of the timeline that you think can give the trade an opportunity to come back in the profit zone. Normally they have at least 85% of intrinsic value for which you have to pay in advance.