Today is the 73rd birthday for Rolling Stones front man Sir Michael Philip ‘Mick’ Jagger. His accomplishments would take up more space that I have available in this posting, but the statement, “one of the most dominant cultural figures of our time” about sums it up. One of my favorite Rolling Stones songs is “Time Is on My Side” which I believe is a great statement with respect to potential success trading options. I always think of that song when discussing my belief that individuals need to have time decay on their side when trading options. Right now we have Wednesday and Friday SPX options, but in less than a month SPX Monday Weeklys (pending regulatory approval) will debut.
The behavior of time decay for at the money options near expiration is nothing new to all levels of option traders. The chart below shows at the money time decay for an SPX option. For the quants that need the details I used 12% implied volatility, the days are the number of trading days, the SPX pricing is 2000, and a 2000 strike call as actual option contract. All of which I think are pretty reasonable assumptions for the current market environment. Note I highlight the last two days of life for this option on the chart below.
I highlighted the last two days on this chart because, beginning next month, CBOE will list SPX Options that expire on Monday. We already have Wednesday and Friday expirations in the SPX complex so adding Monday means there will always be two or fewer days remaining until the next SPX expiration. I think with multiple SPX series expiring each week, all option traders will agree that SPX options now allow traders the opportunity to always have time on their side.