Time Decay factor

While learning about options, there is one concept called time decay factor when selling options (calls or puts).

I thought it’s great if we can apply the same concept to our lives.

Time decay factor works like compounding interest except its starting point is at the maximum. As time passes by, its intrinsic ‘value’ decreases.

Some applications that are possible with this concept:

(1) Be upfront and honest, knowing that time is always on our side.  A ‘secret’ or ‘hurtful truth’ is always easier to swallow at the start than towards the end. Time will ‘decay’ its poison.

(2) Always have the courage to express our feelings. Coincidentally, one of the top 5 regrets of the dying is something similar too, i.e. I wish I’d had the courage to express my feelings.

(3) Financially speaking, the concept of selling insurance or selling options means putting time decay factor on our side. Companies that sell warranties and extended warranties on their products take advantage of time decay factor. Taken as a whole, the claims against warranties are extremely low. (so the next time someone sells you extended warranties, say no).

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