Time Decay Calculation

D

drader77

As a newb to options, I'm kind of playing around with the core concepts such as time decay.

I want to be able to use a formula to calculate how much a particular option will decrease in value due to time decay at some point in the future. The reason I want to do this is I want to quantify how much a long call option has to increase over a period of time to offset the decay due to time.

This would be useful to know in determining how far out into the future I should I choose an expiration so any gains in the value of the option are not occurring when the options loss due to time decay is accelerating the most.

Thanks in advance for your assistance.
 
If you're looking to understand how time value is calculated, you need to study the Black-Scholes equation:

http://en.wikipedia.org/wiki/Black–Scholes

If you just want to be able to calculate future expected value of an option, than use the CBOE calculator linked to above, or better yet, get a free demo account with thinkorswim that will provide you with much nicer options analysis software.
 
Quote from Martinghoul:

Why don't you put such a calculator together yourself in Excel? It's a worthwhile exercise...
More...

I would really prefer to do the calculations as you suggest in Excel. I just need a bit of a nudge in the right direction as far as the formulas/math is concerned.
 
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