what is a wasting asset 
a wasting asset is an item that has a limited life span and irreversibly declines in value over time examples include depreciating fixed assets such as vehicles and machinery and securities with time decay like options which continually lose time value after purchase assets that lose valueany asset that decreases in value is a wasting asset a truck used for business purposes will decrease in value over time accountants attempt to quantify the decrease by assigning a depreciation schedule to recognize the loss a term life insurance policy or a maintenance contract has a time of expiration and will expire worthless a natural resource supply such as a coal mine or oil well has a limited lifespan and will decrease in value as the resource is extracted and the remaining supply is depleted the owner calculates the depletion rate to arrive at an expected life span wasting assets in financial marketsin the financial markets options are the most common type of wasting asset an option s value has two components time value and intrinsic value as the option s expiration date nears the time value gradually declines toward zero at expiration an option is worth only its intrinsic value if it is in the money itm its value is the difference between the strike price and the underlying asset s price if it is out of the money otm it expires worthless other derivative contracts such as futures have a wasting component as a futures contract nears expiration the premium or discount decreases only the premium or discount wastes away and the futures contract is worth something at expiration unlike an otm option investors watch the expiration for any derivative especially options options strategies tend to be shorter term most expiring within one year there are longer term options called long term equity anticipation securities leaps which expire in one year or longer 1example of an option as a wasting assetassume a trader buys an option contract on the spdr gold shares gld if the trust trades at 127 they buy an at the money atm call option with a strike of 127 this option has no intrinsic value since it is atm and not itm the option which expires in two months has a premium of 2 55 the option costs 255 for an option contract of 100 shares 2 55 x 100 shares for the call buyer to make money the price of gld will need to rise above 129 55 127 2 55 this is the breakeven point if the price of gld is below 127 at expiry the option will expire worthless and the trader will lose 255 the writer has captured the time value or wasting asset portion of the option while the buyer has lost it if gld trades above the strike price at 128 at the option s expiry the buyer will still lose money they are fetching 1 but the option costs 2 55 so the loss is 1 55 or 155 which is the option writer s profit if the price of gld is above 129 55 at an expiry of 132 then the buyer will cover the cost of the time value the buyer s profit is 2 45 132 129 55 or 245 for the contract the writer loses 245 if they wrote a naked call option or has an opportunity cost of 245 if they wrote a covered call 