How Does a High Theta Value Affect a DAO That Is a Net Buyer of Options?
Theta is the measure of time decay, indicating how much an option's value is expected to decrease each day as it approaches expiration. A high Theta value negatively affects a DAO that is a net buyer of options, as the purchased options lose value rapidly due to the passage of time.
This means the DAO must be correct about the direction and timing of the underlying asset's price move before the time decay erodes the option's premium entirely.
Glossar
Theta Value
Decay ⎊ ⎊ Theta, within cryptocurrency options and financial derivatives, quantifies the rate of an option’s value erosion as time passes, assuming all other factors remain constant.
Buyer
Position ⎊ A buyer, within cryptocurrency, options, and derivatives markets, occupies the initiating role in acquiring an asset or contract, establishing a long exposure predicated on anticipated price appreciation or a hedging requirement.
Net Seller of Options
Strategy ⎊ A net seller of options, within cryptocurrency derivatives, proactively issues options contracts, collecting premium as immediate revenue and assuming contingent obligations.
Net Buyer
Position ⎊ Within cryptocurrency derivatives, options trading, and financial derivatives, a net buyer signifies an entity accumulating a larger volume of an asset or contract than it is divesting over a specified period.
High Theta Value
Definition ⎊ A high Theta value, typically expressed as a large negative number for a long option, signifies a substantial daily erosion of the option's extrinsic value due to the passage of time.