Theta

Options lose value as they approach their expiration dates. Theta is the dollar amount that an option premium should decrease each day as a result of the passage of time, or the time decay of an option.

Longer expiration date options have smaller initial time decays. Theta values are negative in long option positions and positive in short option positions. For ATM options, theta increases as the option approaches is expiration date. For ITM and OTM options, theta decreases as the option approaches expiration.

MarketChameleon.com displays the Theta in the custom columns of the stock’s Option Chain page, the "Option Greeks" tab of the Covered Calls Screener and the "Option Greeks" tab of the Naked Puts Screener .

Example

Assume the current stock price of IBM is $146.50.

A call option for a $147 strike price with expiration in 40 days may have a premium of $2.40 and a Theta of -.03. Therefore, for each day, the option premium may be expected to decrease by about three cents.

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