Lesson 2 of 6 · Options 101
Strike & expiration
The strike is the price you lock in.
The strike is the price at which you'd buy (call) or sell (put) the shares. A stock at $50 with a $48 call is in the money. A $53 call on the same stock is out of the money. ITM options carry intrinsic value. OTM options are entirely time value.
Expiration is the hard deadline.
Every option has an expiration date. Finish out of the money and the option is worthless. Time value erodes daily and accelerates in the final two weeks. Weeklies expire Friday. Standard monthlies expire the third Friday of the month.
Decay accelerates near expiry.
Time value drops slowly when 60 days remain, then falls steeply inside the final 14 days. That curve is why holding cheap short-dated options is expensive: you lose value fast even when nothing moves.
This one is an animated diagram in the app. See it in Vero.
Two calls, same stock, same expiration. One is $5 in the money, one is $5 out of the money. Which costs less?
Show the answer
C. The out-of-the-money call. The OTM call has no intrinsic value, only time value, which makes it cheaper. The ITM call carries both intrinsic value and time value.