Clearly a portfolio of options reaching maturity is enough to make any trader expire. The rapid transformation that occurs during the last 14 days will catch the most vigilant and disciplined trader off guard, and for this reason all but the irresponsible are well advised to close out their position prior to the last 2 weeks of the life of the series. If any position is to be had, any value that may exist will invariably lie in a slightly long position; albeit one that will decay rapidly should the underlying remain dormant for the last few days of trading. Still, as will be elaborated upon shortly, the value lies on this side of the trade.

The commodity of time as far as options are concerned, has precisely the same effect on the price of an option as does the volatility variable. As such, it will produce the same effect on all other outputs of the option model, including delta, gamma and vega. The only restraint on this duplicating effect is that time waits for no one, and regardless of the ability that volatility has to replicate the effects of time, at some point the similarities will be ever more increasingly short lived. At that point the bell will toll and all options will either expire in-the-money and offer their owners a credit, or out-of-the-money and worthless.

Time decay and volatility share the common incident of uncertainty. The greater the uncertainty- the higher the premium that is demanded by the seller of the option. When the market is experiencing increased volatility, uncertainty is increased and the destiny of any option becomes less clear. Similarly, when there is a long period of time to expiry, the opportunity for market conditions to change is increased, and so this breeds more uncertainty.

When volatility is low, the underlying market is stagnant and so options are more clearly able to be seen as possibilities, probabilities and rarities. When there are but a few days to expiry, the outcome is far more able to be predicted, and many possibilities are at this point forced to become probabilities or simply become highly unlikely.

As always, the seller of an option has unlimited risk, and so a naked sold option will retain the premium in return for an unlimited exposure should the option fall in-the-money and be exercised. Of course as expiry approaches the premiums that are demanded are far less than when there was a great deal of time till expiry. Therefore, approaching expiry, the seller is receiving a very small premium in return for absorbing what is still an unlimited risk.

Even when sold options are hedged with the underlying or another appropriate instrument, the pricing model will require the position to be re-hedged to adapt to changing market conditions. As expiry comes near, the extent of re-hedging also increases at an accelerated rate. When this re-hedging occurs, the seller will be re-hedging at a loss in return for the benefit of accelerated time decay as expiry approaches. Ultimately it is a case of the market moving less and costing less in re-hedging losses, than the time decay accruing each night. Of course, when the market moves wildly in the last few days to expiry, the seller of options will suffer great loss due to the open-ended loss on re-hedging the position that will dwarf the limited pittance that the premium accrual affords.

The precise opposite will be the joy of a net buyer of options while approaching expiry. Certainly the time decay forgone each day will increase to what at times may be an equally as upsetting experience as when a seller watches the market move significantly. However, when the market does move in the countdown to expiry, the gains made by far outstrip the losses on mere time decay. Particularly when re-hedging a long position as expiry approaches, the constant locking in of profit will be invigorating.