Time Decay

“Time Decay” is a vital factor for just any trader when it comes to warrant trading. It is important to keep in mind that a majority of the warrants usually experience the greatest time decay during the last third of their lifetime considering the fact that warrants lose their value as they move towards their expiry date.

Buying a warrant close to its expiry date can be quite risky since time decay takes place regardless of whatever happens to the underlying price of the share. In addition to this, if it is an “out-of-money” warrant that we are talking about at the expiry, then it will expire worthless.

In case the chances of making money look sketchy towards the end of the life of a warrant, it will be better if you are placed cutting the losses and preserving the capital. You can even consider switching to the warrants with longer dates (if your strategy allows that). These are better options than simply hanging on to the bitter end.