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Market Intelligence › Basic Terminologies
The last week of time value, and the fate of an out of the money option
Published by The Retail Trader · JUL 31, 2026 · Derivatives (F&O)
An option's premium is made of two parts — intrinsic value and time value. Near expiry the time value disappears fast, and that is exactly what sets the last week apart from the other weeks.
The decay of time value is not linear. It is slow at the start and very fast near expiry, so a large part of the premium can go in a single day.
That is why out of the money options often end up close to zero on expiry day, even if the underlying has moved a little in your favour.
This is not the same for the buyer and the seller:
• For the buyer, the last week is the hardest — you can lose money even when the direction is right.
• For the seller, decay is favourable, but gamma risk is also highest then.
• One big move can take away a seller's gains of several weeks in a single day.
• So treating decay as free income is the most expensive assumption.
A far out of the money option that looks cheap is cheap because its chance of profit is low — it is not a bargain, it is probability. The price of a lottery ticket never tells you what the chance of winning is.
This article is for educational purposes only — it is not a buy or sell recommendation, makes no claim of guaranteed returns, and is not advisory. Rules, rates and mechanics are changed by the exchanges, SEBI and RBI from time to time, so verify every number yourself with your broker or the official source.