How Does the Concept of 'Time Decay' (Theta) Affect Margin Requirements for a Short Option Position? ▴ Learn

How Does the Concept of ‘Time Decay’ (Theta) Affect Margin Requirements for a Short Option Position?

Time decay (Theta) is the rate at which an option's value erodes as its expiration date approaches. For a short option position, time decay is beneficial, as the option's value decreases, reducing the potential loss for the seller.

This natural decay can help to keep the position's collateral above the maintenance margin level, thereby reducing the likelihood of a margin call over time, assuming all other factors remain constant.

What Is Maintenance Margin and Why Is It Crucial for Leveraged Crypto Derivatives?

Define ‘Initial Margin’ and ‘Maintenance Margin.’

What Is the Difference between ‘Initial Margin’ and ‘Maintenance Margin’?

Define “Initial Margin” and “Maintenance Margin” in the Context of Derivatives Trading