Option Theta

What Option Theta Is

Theta is one of option Greeks. It measures sensitivity of the option’s price to passing time.

Mathematically, theta is the first derivative of option’s price with respect to time to expiration.

Theta Interpretation

The number you see as theta shows how much the option’s price changes in 1 day (in 1 trading day or in 1 calendar day, depending on what you use in the calculation or how your software is set).

For example, if an option’s price is 1.50 today and theta is -0.03, the option’s price will be 1.47 tomorrow (if the other parameters like underlying price and volatility remain constant, which rarely happens in real world).

Option Theta Value Range

In an environment of low interest rates and with low dividends, theta is negative for long option positions (options lose value with passing time).

Note that some trading platforms or software packages may show theta with opposite sign.


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