What Is 'Theta' in Options Trading and How Does It Relate to the Passage of Time? ▴ Learn

What Is ‘Theta’ in Options Trading and How Does It Relate to the Passage of Time?

Theta is one of the 'Greeks' that measures the rate at which an option's value decays due to the passage of time, often called 'time decay'. As an option gets closer to its expiration, its time value decreases, which is reflected as a negative theta for long option positions.

Theta is highest for at-the-money options and accelerates rapidly in the final month before expiration. Traders who sell options (short positions) benefit from positive theta.

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