The premium is high at the beginning of the contract (at birth) and inevitably reaches zero as we age and die.
The volatility (ups and downs in our life) will change the premium temporarily, but time decay (ageing) slowly but maturely overpowers it.
For some, at critical events in their life, the premium may rise, even more that what it was at birth.
Some people, then bet that the premium will continue to rise while others who are more pessimistic will look to short us.
At any point of time, there will always be individuals looking to short us while friends, family and even strangers continue to believe in us.
While the price of our options premium varies greatly as we live, we must pay more attention to the underlying because that is the one that actually is unaffected by time decay and truly represents the intrinsic value of our life’s option.
Image credit – Jo@net
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