What is Theta ?
Theta, in options Greek, refers to the rate of change in an option's price concerning the passage of time. It quantifies how much an option's value decreases as time elapses, assuming all other factors remain constant. Theta is a critical concept in options trading as it highlights the impact of time decay on option prices. Options tend to lose value as they approach expiration, with theta representing this diminishing value over time. Traders and investors use theta to manage their options positions effectively, considering the erosion of an option's value due to time as a key factor in their decision-making process.
How to Calculate Theta?
Theta calculator uses Theta = -Change in Option Premium/Change in Time to Maturity to calculate the Theta, The Theta measures the rate of change in the option price in relation to the passage of time, indicating how much the option's value decreases as time passes. Theta is denoted by θ symbol.
How to calculate Theta using this online calculator? To use this online calculator for Theta, enter Change in Option Premium (ΔV) & Change in Time to Maturity (Δt) and hit the calculate button. Here is how the Theta calculation can be explained with given input values -> -5 = -2.5/0.5.