Theta
The Greeks describe an option's sensitivity to changes in different factors. Here we use ordinary stock options, with other pricing inputs held fixed.
Theta
The speed of time decay
How does the option value change as one day passes?
Bought options usually lose value as time passes. Near the strike, daily decay typically speeds up as expiration approaches. Far from the strike, the daily loss is often smaller. The daily amount is not fixed.
View example
For example, with Theta = -0.08 and other factors unchanged:
- Time passes by 1 day
- The option price falls by about 0.08 yuan
These are local estimates. Option-price amounts are per share; multiply by the contract multiplier for one contract.
For the same option and quantity, a short position has the opposite Greek signs to a long position.
Several factors can change together: a call can lose value even as the stock rises if time decay or falling implied volatility outweighs the gain from the stock move.