{"id":1973901,"date":"2014-04-13T16:59:06","date_gmt":"2014-04-13T11:29:06","guid":{"rendered":"http:\/\/stockviz.biz\/index.php\/?p=1973901"},"modified":"2014-04-13T17:01:16","modified_gmt":"2014-04-13T11:31:16","slug":"forensics-nifty-options-theta-decay","status":"publish","type":"post","link":"https:\/\/stockviz.biz\/index.php\/2014\/04\/13\/forensics-nifty-options-theta-decay\/","title":{"rendered":"Forensics: NIFTY Options – Theta(θ) Decay"},"content":{"rendered":"

The most intuitive option greek is theta (\u03b8) – 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.<\/p>\n

Simply put, theta of an option reflects the amount by which the option’s value will decrease every day.<\/p>\n

Time and Theta<\/h3>\n
    \n
  1. Longer term options have theta of almost 0 as they do not lose value on a daily basis.<\/li>\n
  2. Theta is higher for shorter term options.<\/li>\n
  3. Theta is higher for at-the-money options.<\/li>\n
  4. Theta changes at an exponential rate. It goes up dramatically as options near expiration as time decay is at its greatest during that period.<\/li>\n<\/ol>\n

    Theta decay in action: March 2014 NIFTY Options Since Jan<\/h3>\n

    First, lets look at the underlying:<\/p>\n

    \"NIFTY\"<\/a><\/p>\n

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

    θ of Calls:<\/strong><\/p>\n

    \"March<\/a><\/p>\n

    θ of Puts:<\/strong><\/p>\n

    \"March<\/a><\/p>\n

    Does it mean that you should go out and sell the heck out of every option you can find close to expiry?
    \n 
    \nNo!<\/strong> As expiration gets closer, the risk posed by extreme amounts of gamma outweighs the theta you’re collecting.
    \n 
    \nStay tuned for more.
    \n <\/p>\n

    Related articles<\/h6>\n