theta

 In options trading, theta (Θ) measures how much an option’s price decreases as time passes — this is known as time decay.

🔹 What Is Theta?

Theta = the rate of change of an option’s price with respect to time, assuming all other factors (stock price, volatility, interest rates) remain constant.

Mathematically:

       ∂𝑉

Θ=----------

           ∂𝑡

​

Where:

V = Option price

t = Time to expiration

🔹 What Does Theta Tell You?

It shows how much value an option loses each day due to time passing.

Expressed as a negative number for long options (because they lose value over time).

Expressed as a positive number for option sellers (they benefit from time decay).

🔹 Example

If an option has:

Theta = -0.05

This means:

👉 The option will lose about $0.05 per day in value

👉 That equals $5 per contract per day (since 1 contract = 100 shares)