Theta, named for the Greek letter and using its character θ, is one of the pricing metrics used in options trading. Theta shows the influence of time on the price of an option, and its impact is strongest on at-the-money-options, which can be traded in several financial markets, such as stocks, forex, and commodities.
The effect of time is strongest on options at or close to their strike price – at-the-money options. For options deep out of or in the money, theta has only a limited effect as it is unlikely that they will move back across the strike price. Of course, the more volatile the underlying, the more likely this is, and theta is also influenced by the underlying’s volatility.
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