Option Theta
For example if you buy a $5 option with a theta of $.1 then the option should be worth $4.9 1 day later if everything else remains the same. The option theta is bigger the closer an option gets to expiration. An option that has months before expiration will have much lower theta, or decay at a slower rate, then one that has weeks before expiration. Another thing that that is common with theta is that theta will often get bigger the closer the options strike price gets to the price of the stock. If you do not pay attention to what the theta says you can end up in a situation where your stock does exactly the same as you would like and yet your option still loses value because of time. Unfortunately time value will always work against you as an option trader, but there are ways to reduce it. Buying more time will always be beneficial to you. You can also use this indicator to make sure that you know what to expect from time value shrinking your option’s value and whether it is still worth it to trade that option. Other Greek Options You can learn how options move and better predict how options will change if you use the Greeks. Here is a list of a few big greek options. Option Delta - Tells you how much an option moves from a move in the stock. Option Gamma - looks into the change in the Delta Option Vega - This option takes volatility into consideration. |
