theta
/ˈθiːtə/
the rate at which an option loses value each day due to the passage of time; time decay
theta in a sentence
“Theta of -$0.05 meant the option lost five cents of value every day it sat idle.”
Origin of theta
Greek letter Θ (theta), adopted by options traders to represent time decay
Related Words
hedge
an investment made to reduce the risk of adverse price movements in an asset
futures contract
an agreement to buy or sell an asset at a predetermined price on a specific future date
leverage
the use of borrowed capital to amplify potential returns — and potential losses
call option
a contract giving the buyer the right, but not obligation, to purchase shares at a set price before expiration
put option
a contract giving the buyer the right, but not obligation, to sell shares at a set price before expiration
strike price
the predetermined price at which an option holder can buy or sell the underlying asset