11.30What is theta?
1What is it?
Theta is time decay: how much premium an option loses each day, all else equal.
2Why does it exist?
Theta hurts buyers and helps sellers. It speeds up in the final days before expiry.
3Calculation
- Premium 120, theta −15 → tomorrow ≈ 105 if nothing else changes.
Buyer loses ₹15 × 65 = ₹975 per lot per day.
4Quick revision
- Daily time decay.
- Hurts buyers, helps sellers.
- Accelerates near expiry.
5Knowledge check
Q1. Theta −20, premium 100. Next day (unchanged price)?Show answer
≈ 80.
Q2. Who benefits from theta?Show answer
Option sellers.
Q3. When is theta fastest?Show answer
Close to expiry.