The most intuitive option greek is theta (θ) – a measurement of the option’s time decay. Theta measures the rate at which options lose their time value, as the expiration date draws nearer. It is usually expressed as a negative number.

Simply put, theta of an option reflects the amount by which the option’s value will decrease every day.

### Time and Theta

- Longer term options have theta of almost 0 as they do not lose value on a daily basis.
- Theta is higher for shorter term options.
- Theta is higher for at-the-money options.
- Theta changes at an exponential rate. It goes up dramatically as options near expiration as time decay is at its greatest during that period.

### Theta decay in action: March 2014 NIFTY Options Since Jan

First, lets look at the underlying:

To capture the full move of the NIFTY, you’ll have to look at, at least, a dozen strikes between 5950 and 6900.

**θ of Calls:**

**θ of Puts:**

Does it mean that you should go out and sell the heck out of every option you can find close to expiry?

**No!** As expiration gets closer, the risk posed by extreme amounts of gamma outweighs the theta you’re collecting.

Stay tuned for more.

###### Related articles

- Forensics: NIFTY Options (stockviz.biz)
- Nifty Gap Analysis (stockviz.biz)

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