How Does Theta Affect Deep In-the-Money Options versus At-the-Money Options? ▴ Learn

How Does Theta Affect Deep In-the-Money Options versus At-the-Money Options?

Theta decay is generally lower for deep in-the-money (ITM) options and deep out-of-the-money (OTM) options compared to at-the-money (ATM) options. ATM options have the highest time value, and thus the highest theta, as they are most susceptible to the passage of time affecting their potential to become ITM.

Deep ITM options have mostly intrinsic value, which does not decay.

Why Do ATM Options Have the Highest Time Value?

Does Theta Decay Affect In-the-Money, At-the-Money, and Out-of-the-Money Options Equally?

Explain the Concept of “Moneyness” (ITM, ATM, OTM)

Which Option ‘Moneyness’ Typically Has the Highest Gamma?