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How Does Theta Decay Impact the Cost and Effectiveness of a Short-Term Options Hedge?

Theta decay, the time value erosion, rapidly reduces the option's value as expiration approaches. For a short-term hedge, this decay means the option loses its protective value quickly, requiring frequent re-hedging or rolling.

While the initial cost is lower, the rapid decay can make the hedge less effective and potentially more costly to maintain over time.

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