Define Theta and Explain Its Relationship to an Option’s Moneyness.
Theta is the measure of an option's sensitivity to the passage of time; it represents the daily decay in the option's price due to the reduction of its time value. Theta is typically highest for at-the-money (ATM) options because they have the maximum extrinsic value to lose.
It is lower for deep in-the-money (ITM) and deep out-of-the-money (OTM) options.
