The Greeks
What is Theta (Θ)?
Measures how much an option loses value each day from time decay.
📖 Complete Definition
Theta represents the daily time decay of an option – the amount its value decreases simply from the passage of time, assuming all other factors remain constant. Theta is always negative for long options (you lose value daily) and positive for short options (you gain value daily). Theta accelerates as expiration approaches, especially for ATM options.
📐 Formula
Θ = -∂V/∂t (negative partial derivative of option value with respect to time)
💡 Examples
- →A -$0.05 theta means the option loses $5 per contract per day
- →Options sellers profit from theta; options buyers fight against it
❓ Frequently Asked Questions
How can I profit from theta decay?
Sell options through strategies like covered calls, cash-secured puts, iron condors, or credit spreads. You collect premium that decays in your favor over time.
🔗 Related Terms
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