Theta indicates how the price of an option decreases as it approaches its expiration date. It quantifies the decline in an option's value over time, assuming other factors, such as market volatility and the price of the underlying asset, remain constant.
Things to know:
● Both long call and put options have negative Theta, meaning their value decreases over time due to the loss of time premium.
● Theta decay accelerates as expiration approaches, especially for at-the-money options where extrinsic value is highest.
Theta works against buyers of options. Long positions (calls or puts) lose value as time passes, even if the underlying asset’s price stays unchanged. Conversely, short positions benefit from time decay, as the seller collects the premium while extrinsic value diminishes.
Similar concepts:
Options Greeks | Options Delta | Options Gamma
Disclaimer:
This information is for educational purposes only. Trading in Futures and Options involves substantial risk and is unsuitable for all investors. Past performance is not indicative of future results. Consult a financial advisor before engaging in such trading activities.
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