How moneyness affects time decay
Moneyness refers to whether an option is in the money, at the money or out of the money. In the money options will generally retain their value as the expiry date approaches, because their intrinsic value is above zero and so the option is profitable.
However, at the money and out of the money options are more susceptible to time decay. This is because, as the expiry date approaches, the likelihood of the option expiring in the money gets smaller.
That being said, time decay only begins to affect the price of an options contract the closer that it is to expiry while being out of the money. As a result, it generally has a small effect on an option’s price until the expiry date is approaching.
This means that while the expiry date is a decent amount of time away, a trader can sell an option and still receive a good price on their initial investment. This is also true for the effect that time decay has on an option’s premium, which could help a trader decide whether or not to open a position on an options contract.