We also discussed the components of Premium in options and how they are calculated with real examples. Click here for the complete series & other learning content:https://economictimes.indiatimes.com/newslist/54363265.cmsSimilarly, Options also have expiry (Monthly and weekly), and the Extrinsic value of Options becomes Zero. Just like in the case of cars, the premium keeps dropping exponentially every day.Here is what the Extrinsic value decay graph looks like:ET CONTRIBUTORSX-AXIS Represents Time and Y-AXIS represents the Extrinsic value of Premium. On the first day of the contract, the Extrinsic value is highest and on the last day of the contract (Expiry), the extrinsic value becomes Zero. You might have also observed the script going in your favour, but options are going against you, the main reason for it is this decay.

Source: Economic Times May 06, 2023 11:22 UTC