How to Buy Options With Less Decay (3 Ways)

Рет қаралды 70,043

Күн бұрын

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When buying options, time is working against you because you lose the extrinsic value in the option as time passes and as expiration gets closer. At expiration, only intrinsic value will remain.
When shorting options, time is working in your favor because you profit from the decay of extrinsic/time value in the options as time passes.
But just because time works against you when buying options, it doesn't mean you should abandon option-buying altogether.
In this video, I'll share three approaches you can use to minimize the exposure to time decay that you'll experience when buying options, at least when initially entering your position.
Video Timestamps
0:00 - Introduction
0:53 - Method #1 (Basic But Expensive)
4:40 - Method #2 (Take Advantage of Earnings: Limited-Time Only)
6:41 - Method #3 (Most Flexible)
7:36 - Debit Spread Structure #1 (Minimal Extrinsic Value Decay)
10:44 - Debit Spread Structure #2 (Positive Decay/Theta)
Please let me know in the comments if you have any questions about this video, or just want to show some love (or hate 😐). tastytrade, Inc. (“tastytrade”) has entered into a Marketing Agreement with Project Finance(Marketing Agent”) whereby tastytrade pays compensation to Marketing Agent to recommend tastytrade’ brokerage services. The existence of this Marketing Agreement should not be deemed as an endorsement or recommendation of Marketing Agent by tastytrade and/or any of its affiliated companies. Neither tastytrade nor any of its affiliated companies is responsible for the privacy practices of Marketing Agent or this website. tastytrade does not warrant the accuracy or content of the products or services offered by Marketing Agent or this website. Marketing Agent is independent and is not an affiliate of tastytrade.

Пікірлер: 224

@projectfinance 4 жыл бұрын

Finally a new video out! What did you think? Did you learn something new? How was the pace? Let me know and thanks for watching. -Chris

@acombs1250 4 жыл бұрын

Yes. Pace was good. Just yesterday I was asking people who know more than me about the market what’s the point of waiting for earnings? Some companies report better than expected earnings and their stock still dropped; for example CI. Now, I have a reason to follow weekly earnings and buying a potentially profitable option the same week.

@eseofepe3856 4 жыл бұрын

Thanks Chris. Question - I heard someone say they’d never buy an ITM option. Why would that be?

@gfy305 4 жыл бұрын

Noob here. So, let me get this straight... the more ITM the call option is, the lower the extrinsic value which would equate to the most money I can lose when my option expires? I use Schwab and ETrade and I don't see the Extrinsic Value column in the option chains. Any idea why? Great vid! Thanks!

@carburatordung221 4 жыл бұрын

I got whacked by ATVI earning and i wondered why value drop drastically, now i know why , thanks a lot boss.

@KARTHEEK_N_B_S_KUNALA 4 жыл бұрын

If you SELL OTM lot TWICE THAN ITM BUY VALUE IT COULD BALANCE AND GET MORE MONEY A DOUBT PLEASE CLARIFY

@donnahoder520 4 жыл бұрын

Hey Chris! Thanks for this!

@petewashburn8402 3 жыл бұрын

Absolutely the best teacher of options out there! Thankyou again Mike! So clear and understandable and well articulated. These are gems!

@nikitan2815 4 жыл бұрын

Brilliant video as always! Your answers to the questions in the comment section are sometimes much more useful for me than the video itself (in a good way). Thank you for the highest quality videos!

@mpiresteve 4 жыл бұрын

Thanks a lot man, makes perfect sense the way you explain things. Much appreciated!

@SeeSaw444 4 жыл бұрын

This was really beneficial!! Thanks 👍

@j3m25 4 жыл бұрын

Thanks for informing video. The pace was good and the explanations were great. As always you explain the situations in ways that are easy to grasp.

@cutieunicorn7248 4 жыл бұрын

Very nicely explained. I believe, I need to practice more on my extrinsic value calculations but your explanation really helped. Thanks!

@Saltvik0 4 жыл бұрын

Amazing presentation and no fluff either. Subscribed

@bwsandy 4 жыл бұрын

Good one! Very helpful for novice and beginners. Thanks!

@dennisw8026 3 жыл бұрын

For debit spreads, the sweet spot I have found is the long option one strike ITM and the short option half the delta of the long. Reasonable protection against theta decay and still a reasonable profit potential on the spread.

@TGH0709 3 жыл бұрын

Hello Chris I do nearly 80 of all my spreads as Debit Spreads für max 10-14 DTE. These are the most profitable trades regarding daily profit. In my opionen I thank you so much for this video. I learnt how to play with extrinsic and intrinsic Value which will make my debit spreads fare more profitable Thank you so much!!

@loved2010 4 жыл бұрын

Thanks Chris! I definitely learned something new! I just started trading options and I have a learned a lot tips from you. Thank you for your time.

@bedtimestories4kids 4 жыл бұрын

Would have mentioned buying later expiration dates and included the max p/l with various price actions on the debit spreads, but besides that it was clear and concise! Liked and subbed.

@chiragmehtaspock 3 жыл бұрын

Thank you, I understood some of it.

@anthonygobeil7894 3 жыл бұрын

Thank you for all your free material. Can't express how much I've learned from you. Greatly appreciated 🙏

@Bitsurf24 Жыл бұрын

Very nice. Deep thoughts! Thank you!

@shingentakueda3136 4 жыл бұрын

Nice video Chis, but you might want to (quickly) explain the higher price/cost associated with buying ITM options. Buying ITM eats up more of your capital per option purchased and also puts you at risk of losing more money, if the trade turns against you. There is no free lunch. Removing theta decay increases total capital loss risk per option. Like one of the other commenters stated, I'd rather buy longer dated options and take advantage of the theta decay "plateau" portion of the curve. But still, good video! and food for thought all the same.

@supersaiyanmuslim7569 2 жыл бұрын

Legendary options content creator, learning so much from you Chris. Much appreciated for keeping it 💯

@garyslay4872 4 жыл бұрын

So excellent. I needed exactly this!! Lost do many calls to zero

@marceelinab2695 4 жыл бұрын

Great video! I was just thinking today that it has been a while since your last video. Great slow pace 👍👍👍thank you 👏👏👏👏

@projectfinance 4 жыл бұрын

Haha yeah I got REALLY busy all of the sudden with other engagements and a family visit. I should be more consistent in the near future, especially on my other channel. Thanks for watching the new vid!

@kelter41 4 жыл бұрын

Thanks you, I didn't have to slow down the video to better understand.

@j.c.2973 4 жыл бұрын

Spot on Chris! Well done!

@ridgerow 3 жыл бұрын

As a new options trader, I have learned a huge amount from your videos. Thank you for such precise detailed instructions. I tell everyone to study your videos because you explain it so simple. Keep your videos coming.

@joyjones5097 3 жыл бұрын

God Bless You. It's the first time I truly understand what it means to do spreads. Thanks

@Elian22 4 жыл бұрын

I needed this exact video a month ago😂 Thanks so much bro!

@sridharsrinivasan625 4 жыл бұрын

very clear explanation mate.Please post regular videos !

@vivekraman4013 4 жыл бұрын

I never used to buy deep in the money, always at either side of the border line. Should try that now, it makes sense.

@jasonfoster9118 3 жыл бұрын

Thank you. I'll be using this for the upcoming NIO earnings

@sagig72 4 жыл бұрын

Great Video Chris !

@AKGuerilla 3 жыл бұрын

Wow, I usually avoid any trading related content on youtube like the plague but this is the third video I'm watching on this channel and this guy didn't even try to grift me on buying a course.

@monil1601 4 жыл бұрын

It is a very informational video. Would like to learn more about writing debit and credit spreads. Thanks Chris!!

@anthonyliew2587 4 жыл бұрын

Really insightful! 👍

@jj-big-slay-yo 3 жыл бұрын

you can also buy long expiration options like at least 150-180 days. theta decay is slow burning then. it gets bigger when you get down to 60-40 days to expiry though

@daxross2930 3 жыл бұрын

Thank you

@cajuninvestor8091 2 жыл бұрын

Great video but I need to re-watch a couple of times to fully absorb! Thanks, Chris!

@pauld9933 4 жыл бұрын

Theta decay is greatest near expiration. Another means of slowing decay is buying an expiration date further out.

@projectfinance 4 жыл бұрын

Yep, I forgot to talk about buying longer-term options. Thanks for checking out the video

@MoltenMouseMetal 4 жыл бұрын

But conversely, the further out the expiration, the lower your Delta and the smaller your changes in option premium will be based on movement in share price :|

@Pijoto 4 жыл бұрын

Been learning that the hard way... Staying away from weeklies....

@peter8454 3 жыл бұрын

not necessarily - you can buy a high delta option. Also, you can reduce the cost base by selling shorter term options against it - a.k.a. poor man's covered call/put.

@samuraisom636 3 жыл бұрын

@@MoltenMouseMetal i dont think delta has anything to do with date of expiration

@johnjacobson2010 3 жыл бұрын

You understand options very deeply. And the clarity of the explanation is second to none. The internship at tastyworks, I bet, was a life changing event. You worked hard and learnt well.

@johnjacobson2010 3 жыл бұрын

@@charleewayne5164 Abso.freaking -lutely YES!!! I want the content to be just as good if not better than the project option content. These videos are dope. I will start listening and following closely! All the best on the new adventure!

@koyomo2910 3 жыл бұрын

thanks for the video.

@amatuer2 4 жыл бұрын

Well said , your explanation was great especially the view on the option chain.

@OfficialKingKulin 4 жыл бұрын

thanks for this very helpful

@majimusic 3 жыл бұрын

Hi Chris, I enjoy your videos for their content and depth of information. Thank you. This video made me think of calendar spreads and then selling shorts against the long option, a PMCC. Can you speak to your ideal structure... 1. length of the long option, say calls. 2. the ideal setups. 3. the advantages vs disadvantages. Thank you. I appreciate it.

@gregbabin365 4 жыл бұрын

Very well explained

@sfx1971 4 жыл бұрын

Very nice! You have such an easy style of teaching. The rhythm and pace is perfect for me. Well done and thanks again!!

@projectfinance 4 жыл бұрын

Thanks for the nice comment. I'm glad you liked the pacing/teaching. More to come!

@mikejohnson7735 4 жыл бұрын

Well explanation!! Thank you. Could you please make a video on naked options.

@merajulislam2232 3 жыл бұрын

You are the options real boss. Thank you for the video.

@chitownrabbit 3 жыл бұрын

Excellent video. I would mention however, that first strategy works the best with liquid stocks, because bid/ask is not that wide for the deep in the money and for far out of the money options.

@jbiwer32 4 жыл бұрын

Great video, thank you! Can you make a video similar to this one but show the payout (or loss) if the price of the stock rises above the call or falls below the put?

@evadesc 4 жыл бұрын

Great topic, great channel. Congrats on your vid Options Trading for Beginners getting 1 mill views; it is one of the best out there no question bout it. Now can you do a vid on how to find the next Kodak trade upon initial volume spike and how to time long puts as it fizzles out a few days later? Lol.

@landisk3530 4 жыл бұрын

Learning alot everytime I watch your video. Thank you very much Chris! One newbie question, i did a vertical spread and both are in the money at the moment. Does it mean that i have to exercise it (the long option) before market close on the day of expiry? Or will Tastywork automatically net the spread for me and i take just the pre-determined loss?

@ssplushy 3 жыл бұрын

Regarding the spread price(s) . . . Example: FB @ $249.29 Spread Price = $5.80. How is that obtained when the ask-bid difference is 5.95 ? Did you make different offers that aren't shown? Short 250 = $11.50 (bid) Buy 240 = $17.45 (ask) Great videos! Thanks!

@randyhibshman3682 Жыл бұрын

thank you, Chris. this is super helpful. if YT would allow, i would “like” this video several times.

@projectfinance Жыл бұрын

Thank you Randy :D

@arthurcastellano_dp 4 жыл бұрын

The Mr Meigee of options is back!

@LibertyChannel188 3 жыл бұрын

great videos ,it help me a lot ,thanks

@projectfinance 3 жыл бұрын

Thanks for the comment! I'm glad it helped~

@davidvelazquez5276 4 жыл бұрын

Hi. I visited you site, do you have a recommended order to watch the video... these videos are very good

@navinsai5726 3 жыл бұрын

awesome! your voice is so crystal clear and very good explanation! Keep coming

@projectfinance 3 жыл бұрын

Thanks, will do!

@MsTwilightSpeaks 3 жыл бұрын

Your no b.s option strategy is a winner 🏆

@y.technology9172 3 жыл бұрын

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@josehernandez6684 3 жыл бұрын

The stock market is extremely dependent on various economic and political reasons. Profit not just when the price goes up, but when it falls down too! Thanks to my fund manager and investment adviser Jacob Lowery.

@psychiclewis7791 3 жыл бұрын

That’s his number I do contact daily for guidance, lessons, newsletters and to receive strategies for the maximum returns of my investment on my account I trade independently with. He earned me $7,230 within a month with his admin decentralized account, said it’s used to carry out trading activities on all his clients including me.

@masonbudanova6527 3 жыл бұрын

incredible!!! and hardwork, Lowery J does alot more to make sure such level of profit is generated... its just pure natural intuition

@xrp6987 3 жыл бұрын

Bitcoins spike can’t be compared to YFIs, many argue on this two assets. I have more faith in bitcoins though. Btw Jacob Lowery is the best to trade with

@pankajupa3656 4 жыл бұрын

Chris kindly make a video on how to set our stoploss and target in option trading

@bettyangel7009 Жыл бұрын

Very informative.

@projectfinance Жыл бұрын

Thanks Betty!

@stevieb931 4 жыл бұрын

Great tutorial!!! What do you use to edit your videos?

@dheerajchidambaranathan 4 жыл бұрын

Hey Chris, Did you touch up on LEAPS? Wouldn't that be another strategy to employ here?

@steve6429 3 жыл бұрын

Calendar debit spread is the best strategy: Sell a call (w/ higher strike) that expires 1 week before a call that you buy. You get positive theta decay!!!

@Hugo-xj2mj 3 жыл бұрын

Cool stuff!

@projectfinance 3 жыл бұрын

Thanks!

@ad200554 3 жыл бұрын

Hi Chris thank you for creating this channel. I am new in option and I use Tastyworks that why I found this channel. Very imformative. When you trading that spread do you place that two trade (Buy a Call and Sell a Call) in the same day or I can place a Sell Call in two weeks after my Buy Call?

@ericmiller3673 3 жыл бұрын

Isn’t the last call spread you went over the same as selling the put credit spread with the same strikes? Thanks for the great content!

@Roman_andtheprey 4 жыл бұрын

This is so relevant to what I've been trying to do and I'm so happy I saw this. I've had a really frustrating summer trade wise. Thank you dude. Please put out more content. I always share your vids. Be well.

@Roman_andtheprey 4 жыл бұрын

A side note to that would be I was noticing sometimes I would buy myself a little bit more time on long options in order to see what would happen after earnings or an FDA approval (if the news was lackluster)... I could never figure out why, even if stock price movement would eventually rectify, I'd still be losing money because of extrinsic decay. Very helpful...

@calvinlong1321 4 жыл бұрын

@@Roman_andtheprey Long Straddle - you win either way

@herrickinman9303 3 жыл бұрын

@@calvinlong1321 A long straddle will lose money if the underlying doesn't move much or moves slowly.

@calvinlong1321 3 жыл бұрын

@@herrickinman9303 Exactly ! What would happen after earnings or an FDA approval most likely is either up or down not moving sideway, isn't it?

@bigboardtrader7392 4 жыл бұрын

Can you create a video talking about Covered Calls? The good the bad and risk. Thanks

@letsfixit1198 4 жыл бұрын

Hi Chris, I Iike your videos very much. Im new to the game and will like to learn so much more. I was thinking about taking your course but I want to know if for a person that does not know much about trading options this will be suitable. I literally decided I wanted to learn a few weeks ago and have been seeing a lot of youtube videos, but I want to focus on trading options. Out of all the videos I have watch I like how you explain and go over everything. Thanks

@Alejandro-db2xj 3 жыл бұрын

Perfect

@GrowWithWill 3 жыл бұрын

The great part about spreads as well is just in that it helps with risk management.

@trixy8669 3 жыл бұрын

Spreads are great ways to throw money away.

@GrowWithWill 3 жыл бұрын

@@trixy8669 do explain

@Marius-jb1jh 4 жыл бұрын

What do you think about calendars or PMCC ?

@prodner 4 жыл бұрын

"No BS" I like it

@Heartbeat-xf2id 4 жыл бұрын

Awesome

@matteozanini9115 3 жыл бұрын

Hi Chris I waswondering if it’s more convenient to buy call in the money or out of the money with the underlying moving in a clear uptrend and with strong momentum? Thanks

@ethanjiinkies5450 4 жыл бұрын

Nowhere better to learn than ProjectOption.

@projectfinance 4 жыл бұрын

thanks! I appreciate that

@supermansuperman813 3 жыл бұрын

@fufuhu148 3 жыл бұрын

Thanks for making those amazing contents for us. Recently, I've been discussing a question with a friend of mine who works for Tesla now. He joined Tesla late last year as a software developer, now, the stock price has 10x+ed during the last few months, he wants to make sure he profits from this stock rises regardless of the future price changes. Is it wise for him to purchase naked put option at current price until a part of his stock gets vested early next year?

@donnyh3497 3 жыл бұрын

Great video Chris! I am subscribed and learning from your videos. My question is this: if you put on one of those call debit spreads that you showed do you have to close the position before expiration in order to not get assigned 100 shares?

@JK-vb9ps 3 жыл бұрын

yes, one would close out the position

@asquareinvesting Жыл бұрын

Hi.. if we are bullish n expiry is close , so put spread is better or call spread is better

@throughthemuckandthemire677 3 жыл бұрын

When a stock is being pumped - is that similar to an earning announcement?

@samrobinson8385 4 жыл бұрын

Hey Chris, excellent content as usual!! Do you have a video of how to trade LEAPs with low implied vol?

@projectfinance 4 жыл бұрын

Thanks! I do have a video on LEAPS (recent upload) but not specifically in low IV. But in that video, I looked at a long-term SPY call option that experienced virtually no IV decrease in the long-term expiration while the short-term IV (the VIX) went from 90 to 60. The longer-term options have much more stable IV/prices.

@samrobinson8385 4 жыл бұрын

@@projectfinance Thanks!

@Alejandro-db2xj 3 жыл бұрын

Do you have a video where you show how to calculate intrinsic value?

@extraa8168 4 жыл бұрын

Hey Chris... Great video as usual! For the first technique (deep ITM calls), is there a significant difference in the deltas of the deep ITM calls and the ATM or OTM calls?

@bedtimestories4kids 4 жыл бұрын

Deeper ITM calls have deltas closer to 1. ATM around .5 and decreases further OTM.

@extraa8168 4 жыл бұрын

@@bedtimestories4kids thanks. Actually, after I watched this video, I went back to my trading platform and checked the deltas for different combinations of atm/ itm and near and far off expiries, and I concluded that deep itm and far off expiry options are the best to invest in. High deltas and low thetas, plus some time buffer in case the price goes against you. They are a bit more expensive but the options retain that value, unless the price really goes against you.

@PH33ZYTRADES 3 жыл бұрын

Happy to see the Bitcoin Standard on your coffee table. Great book.

@projectfinance 3 жыл бұрын

Good eye! :)

@michael_anthony 4 жыл бұрын

Chris - how are profits from options taxed? I know it's smart to hold shares of stock for at least a year, but is the duration of the option contract the determining factor of tax on any profit?

@bigboardtrader7392 4 жыл бұрын

Is a call spread the same as a bear call spread? Using Etrade plateform. Trying to learn the setups. Thanks

@muxi0121 4 жыл бұрын

Options content with no bullshit 👍

@drewgibson4233 4 жыл бұрын

Hey man do you have a video on selling cash covered puts? I am confused on a few things like do you collect the total premium upon expiration? Even if say you only made 20% return a day before expiration if you just let it expire would you collect the full premium or just the 20%? Love your stuff btw man super helpful in helping me to branch out and try my hand at options.

@projectfinance 4 жыл бұрын

I can update a video on that, and thanks for checking out my videos! When you trade options, you pay/collect the option value at trade entry. As the option value changes through time, your P/L also changes. So if you short a put option, you collect the option value at trade entry. If the put value falls, you'll have a profit. If you want to close the position, you pay out the current put value, and your overall profit is the difference between what you collected initially and what you paid out to close the trade. It's not an all-or-nothing situation where you get all of the premium at expiration. People say that because if the option is worthless at expiration, that means the option price is $0, in which case your profit is the entire put premium you collected at entry. It's a fluid P/L change from trade entry to expiration. It doesn't all happen at one moment.

@thenoonlife3304 3 жыл бұрын

So, to find the break even price, when it's a vertical spread, we add the price of the spread to the current stock price? Is this how we calculate the break even for a spread, generally?

@lorenzohalloran6791 4 жыл бұрын

I needed this so much! Thank you seriously. I have been day trading options very successfully for a few months. This will help me mitigate losses on trades I know may end up staying flat.

@projectfinance 4 жыл бұрын

Thanks for checking out the vid! Keep in mind that if the ITM options/spreads become at-the-money or out-of-the-money, they will shift from intrinsic to extrinsic, which will be exposed to decay. But I hope these tips helped either way

@marionpettkus6916 3 жыл бұрын

Great thank you...are you not worried that with this very close in the MONEY spread for your short..that your contract could be exersised?

@projectfinance 3 жыл бұрын

No. Early assignment risk is an irrational fear.

@MattBuysHouse 4 жыл бұрын

does short call mean you buy it or sell it

@dontswin 3 жыл бұрын

I still need the beginner courses on call options. I generally only sell puts. I still can't grasp calls although I do get an understanding of covered calls. Which means your 100 shares can get called away. As I see it call buying is mostly meant for big money option players generally and call selling is for those wanting to sell (unload) their shares more favorably if the stock takes a dramatic nose dive when they least expect it. Are these observations correct?

@TheLustz 3 жыл бұрын

what is the best way to profit from a quick change in stock price aside from a single call or put buy? I've been doing spreads and they dont really change the spread price that much with stock price moving in my favor. is there any other strategy that can quickly profit from a fast large stock price swing?

@anuragjain2781 4 жыл бұрын

Hey Chris, hitting gym lately huh? Arms look pumped up

@projectfinance 4 жыл бұрын

Haha I've been a frequent gym-goer for almost 10 years now!

@arupian666 4 жыл бұрын

you should check out the guy who I'm sure must be his brother, or cousin or something, Mike on TastyTrade... that guy is RIPPED... when I say "check out", I don't mean... I'm not saying... I just mean "look at"... you know what I mean... I'll shut up.

@maranamass234 3 жыл бұрын

@@projectfinance How much do you squat/bench/dead brah?

@jeffshackleford3152 3 жыл бұрын

@@arupian666 Are you talking about that dude with the weird thing on his head?

@ThinkMoneyBenny 4 жыл бұрын

i like to buy my calls 2-3 months out and close to the money

@projectfinance 4 жыл бұрын

I can't believe I didn't talk about buying longer-term options in this video! That would have been a nice addition. I'm a fan of buying long-term calls as well (1.5 - 2 years out).

@nikitan2815 4 жыл бұрын

@@projectfinance LEAP options are awesome! I made money on couple of them when IV jumped higher even when the price moved against the direction of my options.

@jdthefirst 3 жыл бұрын

How to apply this to strategies?

@jiaminzhu406 3 жыл бұрын

Can I consider buying leaps as another way to reduce time decay? You talked about leaps a couple month ago and it was really helpful.

@thegormlesstwit849 3 жыл бұрын

BA Sept.18exp 165 call theta is -0.481 , Feb 2021 165 call theta is -0.08

@jiaminzhu406 3 жыл бұрын

@@thegormlesstwit849 That's exactly what I meant and hence the question.

@titaniumsandwedge 3 жыл бұрын

The example of FB at choosing the buy the $225 call vs. the $250 call is a bad choice. If FB is currently trading at $250 and it stays at $250 on the day of expiration, yes the $225 call is better. But what if the price drops to $240? The $225 call fares much worse. Options are purchased for leverage which means how much will the option jump in price when the stock goes up. The $250 option is much better in this department. The second example of little theta decay for earnings week options is true. In general if one structures options setups that minimized theta decay, it also minimizes leverage. I know this to be true but it would hurt my hair to show an example.