Time Decay of Out-of-the-Money Options

[writer11]

Time decay of options is the main reason why commodity traders lose money when they buy out-of-the-money options. Option contracts only last for a limited amount of time. Therefore, options lose value every day and that rate accelerates in the last 30 days of the option. Basically, you are placing a bet that has to pay off in a certain time frame.
This means that you not only have to be correct on picking the direction of the market, but you have to be correct on the timing. For far out-of-the-money options, you will have to get a very strong move in the underlying futures market to make a decent profit on out-of-the-money options. These moves don’t happen too often, so you are buying long shots with this option strategy.