Definition
Theta is an options Greek that quantifies the daily erosion of an option's time value as expiration approaches. It's negative for long option positions (you lose value) and positive for short positions (you gain value). Theta accelerates as expiration nears, especially for ATM options.
Formula
Theta = Change in Option Price / Change in Time (1 day)
Example
An option with -0.05 theta loses $5 per contract per day (assuming 100 shares), all else equal.
FAQ
What is Theta (Options Greek)?
Measures how much an option loses value each day due to time decay.
How do you calculate Theta (Options Greek)?
A common formula for Theta (Options Greek) is: Theta = Change in Option Price / Change in Time (1 day)
Why is Theta (Options Greek) important?
Theta (Options Greek) helps investors evaluate options and make more informed decisions.