Meet the Option Greeks - Theta
Theta is an option Greek that measures the rate of change in the price of an option relative to the passage of time. It represents the amount by which the option price is expected to decrease per day as expiration approaches.
Theta is calculated using mathematical models such as the Black-Scholes model, which consider various factors such as the underlying asset price, time to expiration, volatility, and interest rates. The theta value indicates the expected change in the option price per day as the expiration date approaches.
For example, if an option has a theta of -0.10, it means that if all other factors remain constant, the option price is expected to decrease by $0.10 per day as the expiration date approaches. Theta is an important measure for option traders as it helps them understand the time decay of their options positions and make decisions about when to buy or sell options. Option traders often try to take advantage of theta by trading options with short time to expiration or by implementing strategies that benefit from time decay.
Theta is calculated using mathematical models such as the Black-Scholes model, which consider various factors such as the underlying asset price, time to expiration, volatility, and interest rates. The theta value indicates the expected change in the option price per day as the expiration date approaches.
For example, if an option has a theta of -0.10, it means that if all other factors remain constant, the option price is expected to decrease by $0.10 per day as the expiration date approaches. Theta is an important measure for option traders as it helps them understand the time decay of their options positions and make decisions about when to buy or sell options. Option traders often try to take advantage of theta by trading options with short time to expiration or by implementing strategies that benefit from time decay.
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