Theta(redirected from Theta (letter))
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The ratio of the change in an option price to the decrease in time to expiration. Also called time decay.
Copyright © 2012, Campbell R. Harvey. All Rights Reserved.
The decline in value of an option contract over the passage of time. Assuming all other factors (such as the price of the underlying security) remain constant, the price of the option will decline as the expiration date nears because it becomes less likely that the option will be in-the-money or out-of-the-money at expiration. Theta is an attempt to quantify this fact. It is important to note that because other factors do not always remain constant, the price of the option does not always decline according to the theta.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved
The sensitivity of an option's market value relative to a change in the time to expiration. Theta is a measure of time decay and tends to grow larger as an option approaches expiration.
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.