Options & derivatives
Theta
Also called Time decay
How much value an option loses each day simply because time passes.
How it works
Theta is negative for buyers and positive for sellers. Decay accelerates as expiry approaches, and is fastest in the final weeks.
It is why an option buyer needs the move to happen soon, not eventually.
Related terms
- PremiumThe price paid for an option, made up of intrinsic value plus time value.
- ExpiryThe date after which an option ceases to exist.
- OptionA contract giving the right, but not the obligation, to buy or sell something at a set price by a set date.
- Covered callSelling a call option on shares you already own, to collect premium in exchange for capping your upside.
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