Define “Theta” and Its Impact on Option Value over Time.
Theta is the "time decay" Greek, measuring the decrease in an option's price for every day that passes, all else being equal. It is always negative for long option positions.
Theta decay accelerates as the option approaches expiration, meaning the option loses value at an increasing rate, particularly impacting Out-Of-The-Money and At-The-Money options.
Glossar
Option Value
Measure ⎊ Option Value represents the total market price of the derivative contract, encapsulating both its immediate intrinsic worth and its potential future worth based on time and volatility.
Theta
Decay ⎊ Theta, within cryptocurrency options and financial derivatives, quantifies the rate of extrinsic value loss as time passes, representing a critical component of options pricing models.