What Is “Theta” in Options Trading?
Theta, also known as time decay, is one of the Greeks that measures the rate at which an option's value erodes as time passes, assuming all other factors remain constant. As an option approaches its expiration date, its time value decreases, which is reflected by Theta.
Long option positions have negative Theta (losing value daily), while short positions have positive Theta (gaining value daily).
Glossar
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.
Time Value
Duration ⎊ The temporal dimension inherent in cryptocurrency derivatives, options trading, and financial instruments fundamentally defines time value.
Long Option Positions
Leverage ⎊ Long option positions in cryptocurrency derivatives represent a contractual right, but not the obligation, to buy or sell an underlying asset at a predetermined price on or before a specified date, offering amplified exposure to anticipated price movements with limited initial capital outlay.