You've most likely heard the phrase, 'time is money", and were convinced that this was a truth equal to law. Just as mathematics has its conventions that are not law-bound, so it is true about time equaling money. Simple, right? In this article, I explore some of the remarkable aspects of an investment universe with negative interest rates, so-called negative carry trade, and relate it to the time-value calculation in options pricing, as well as how we should understand the calculus in our overall trading.
If you trade options, you should be familiar with the options "greeks", one of those being time theta, the first-order derivative of the options pricing model. This calculation is an abstraction of what may be perceived as so-called time value decay. Those who are keen in math, are familiar with compound interest growth as well as decay in sociology and science fields. Because finance is mostly constricted to zero-bound limit investments, there isn't a practicing application of negative growth for compound. That simply doesn't exist in finance. However, as mentioned with the options calculus, financial options have a time value that inevitably decreases day by day. The greater t…
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