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Theta

Theta - Definition
Theta is the options greek that measures the rate at which a stock option's value diminishes over time with the underlying stock remaining stagnant.


Theta Explained
Time decay, the diminishing of the price of stock options with the underlying stock staying still, is truly the main enemy of every buyer of stock options. Theta estimates that daily decline of value, allowing options traders to estimate the risk of holding each options contract. Theta is highest for At The Money (ATM) Options and lowest for deep In The Money or far Out Of The Money options. That is why options traders not wanting to risk a decline in value due to an extended wait for the stock to perform rather go for the safe In The Money options.


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