What Time Does to a PositionMedium

Every instrument has a clock in it. On some the clock pays you, on some it charges you, and on a few it does both at different points in the same year.

4 min read · 710 words · Updated 4 Sep 2026

The question

• Most analysis asks what happens if the price moves. The other question is what happens if it does not move for a month, and the answers differ more between instruments than the first question does.
• Five distinct effects go under the loose word "time". They are not variations of one thing: they come from different clauses, they run in different directions, and an instrument can carry more than one.

The five clocks

Reading each one

• Decay is not linear. It accelerates as expiry approaches and it is concentrated near the strike, which is why a position that was patient for two months can lose most of its remaining value in the last two weeks. Volatility is the other half of the same pricing.
• Roll is the effect people meet without knowing its name. A commodity or volatility position held through several expiries pays or receives the difference between the expiring and the next contract each time. Over a year that can dominate the price move entirely. Futures is the instrument; the shape of the curve decides the sign.
• Pull to par is the one clock that is contractual and certain. A bond bought at 105 will be worth 100 at maturity, whatever happens in between — see why a bond trades above 100. It is the reason yield to maturity and coupon differ.
• Reinvestment is the assumption hiding inside every quoted yield. Money that arrives has to be put somewhere, at rates nobody knows yet. It is why a yield to maturity is exact and its realisation is not.
• Compounding drag applies to anything that resets a ratio on a schedule. It is arithmetic, not a fee, and it is set out in full on why a leveraged ETF loses over time.

Which instruments carry which

• An option: decay, and nothing else. Time is the whole of what you are paying for.
• A bond held to maturity: pull to par and reinvestment, in opposite directions. If rates fall the price rises and the coupons reinvest worse; if rates rise the reverse. That partial cancellation has a name — duration matching — and it is the basis of most liability-driven investing.
• A rolled futures position: roll, and no decay at all. People often describe it as decaying, which conflates two mechanisms with different causes.
• A share: no clock of its own. This is the honest answer and it is unusual — most instruments on this site have one.
• A structured note: often three at once. A barrier product with a fixed maturity carries decay on its embedded option, pull to par on its bond component, and a payoff that depends on where the price is on a specific date. The reverse convertible is the clearest example.

The two-minute exercise

• Set the market move to zero and step forward a month. Whatever changes is the clock, and it is the part that is knowable in advance.
• Ask who is on the other side of that clock. Decay paid by an option buyer is decay received by the writer. Roll cost paid by a long is roll yield received by somebody else. None of these effects destroys value; they move it, on a schedule.
• Then ask whether the position needs to be right quickly. An instrument with a clock against it converts "eventually correct" into "wrong", and that conversion is the single most common way a good view loses money.