Time decay is the buyer's carry

The other tracks priced standing costs - the futures roll, crypto's funding. The option buyer's standing cost is time decay, and this lesson prices it as the carry it is: a continuous bleed that accelerates, and the reason a bought option is a race.

Decay as a running cost

• Continuous: a long option loses time value every day, whether the underlying moves or not - the standing cost of holding possibility, running against the buyer daily like the roll ran against the futures holder.
• Accelerating: unlike the roll's steady rate, decay speeds up toward expiry (module 1), so the carry is cheap when expiry is distant and dear in the final weeks - a standing cost that worsens as it runs.
• The seller's income: the mirror - a short option collects the decay, earning the carry the buyer pays, which is the entire logic of premium-selling and the reason module 4 examines the seller's side so carefully.

Pricing the carry into a view

A bought option's true cost is the entry frictions plus the decay it will bleed over the holding period - and the decay can dwarf the spread and commission for a position held more than briefly. A view that will take weeks to play out pays weeks of accelerating decay, so the honest cost of a slow directional view expressed through options is large, and often larger than the view's edge. This is why buying long-dated options to 'give the view time' has its own cost: more time is more decay, paid for in a higher premium and bled continuously. The carry must be priced into the view, because a correct-but-slow view loses to it.

The carry and the instrument choice

Decay-as-carry reframes when options are an expensive way to express a view: a directional view with no timing precision pays heavy decay through options, where the underlying itself (the equities track's cash position) carries no such cost - so the option's leverage and limited risk are bought with a carry the share position does not pay. The honest comparison, which module 6 makes fully, is the option's carry against its advantages: sometimes the limited risk and leverage are worth the decay, often they are not, and a view that could be expressed in the underlying without paying decay frequently should be. The buyer's carry is the cost that makes this comparison necessary.