Theta

The Theta is a measure of the effect of a change in time to expiration on the theoretical values of puts and calls. The Theta is sometimes referred to as the time decay factor because it measures the rate at which an option loses its value as time passes. The Theta of an at-the-money option always increases as expiration approaches, so a short term at-the-money option will always decay more quickly than a long term at-the-money option. The at-the-money option always has a greater Theta than either an in-the-money or an out-of-the-money option with the same expiration date.

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