Concept
Theta (Time Decay)
Theta measures how much a theoretical option price changes as one day passes, with everything else held constant. For a long option it is typically negative: time passing reduces value.
Theta across spot price (19800 – 24200)
| Theoretical price | 512.69 |
| Deltachange in option value per 1 unit move in the underlying | 0.5515 |
| Gammachange in delta per 1 unit move in the underlying | 0.00035 |
| Thetachange in value per calendar day, all else equal | -9.555 |
| Vegachange in value per 1 percentage point of implied volatility | 24.953 |
| Rhochange in value per 1 percentage point of interest rate | 9.550 |
Computed with the same Black-Scholes implementation CernoQuant uses for real trades, at a 6.5% risk-free rate and calendar-day theta. Values are theoretical: traded option prices differ from model prices, and every input above is hypothetical.
How to read it
- Theta is expressed per day. A Theta of −4.2 means the model price falls by about 4.2 if a day passes and nothing else moves.
- Decay is not linear. It accelerates as expiry approaches for at-the-money options, which is why the final days behave differently from the first.
- Theta is largest in magnitude near the money. Far out-of-the-money options have little value left to decay.
What it does not tell you
- The "everything else constant" condition is the catch. A day in which the underlying moves or volatility shifts can swamp the decay entirely.
- Platforms differ on whether Theta is quoted per calendar day or per trading day, so the same contract can show different figures in different places.
- It is a model output. Traded prices are set by supply and demand and do not decay on a schedule.
Frequently asked questions
What does theta mean in options?
How much the theoretical price changes as one day passes with all other inputs unchanged. For long options it is normally negative.
Does time decay accelerate near expiry?
For at-the-money options, yes — the rate of decay increases as expiry approaches. Far out-of-the-money options have little remaining value and decay slowly in absolute terms.
Why does theta differ between platforms?
Mainly because of the calendar-day versus trading-day convention, and because platforms may use different volatility and interest rate inputs.
Can theta be positive?
For a short option position the passage of time works in favour of the position, so theta is quoted as positive from that perspective. The underlying calculation is the same.
Related
- Options Greeks: An Overview — Concept
- Delta — Concept
- Vega and Gamma — Concept
Educational use only
This page is educational material about how a technical tool is calculated and read. It is not investment advice, not a recommendation to buy or sell anything, and not a signal service. No indicator predicts future prices. CernoQuant is a trading journal and analytics platform, not a SEBI-registered investment adviser. Trading decisions and their outcomes are yours alone.
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