66  •   The Intelligent Option Investor
still fall slowly. Time decay is governed by the shape of the BSM cone and 
the degree to which an option’s range of exposure is contained within the 
BSM cone. The two basic rules to remember are:
1. Time decay is slowest when more than three months are left  
before expiration and becomes faster the closer one moves toward 
expiration.
2. Time decay is slowest for ITM options and becomes faster the 
closer to OTM the option is.
Visually, we can understand the first rule—that time decay increases 
as the option nears expiration—by observing the following:
Slope is shallow here...
But steep here...
The steepness of the slope of the curve at the two different points 
shows the relative speed of time decay. Because the slope is steeper the less 
time there is on the contract, time decay is faster at this point as well.
Visually, we can understand the second rule—that OTM options lose 
value faster than ITM ones—by observing the following:
Time BT ime A Time BT ime A
GREEN
GREEN
ORANGE
OTM option ITM option