Definition of Theta
What is Theta
Theta is a ratio that measures the rate of change of an option’s value as it relates to time. In effect, it is a measure of an option’s sensitivity to time.
If an option theta is negative .20, the expectation is that the option price will decay or decline by 20 cents per day, assuming all other factors remain the same. The rate of time decay tends to accelerate as an option nears the expiration date.
Theta is one of the first-order Greeks or major Greeks.
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