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Welcome to your source for answers to questions about option concepts, strategies, and terminology. A new question and answer is published each week. To view the Ask the Institute archives, click the "Ask the Institute Archive" link below.

Please note, questions WILL NOT be personally answered and may not be chosen for publication on the web site.

View the archive of all "Ask the Institute" questions.


This week's question:

DATE: July 25, 2014


Can you explain the concept of Theta, one of the option Greeks, and how an option trader might use it in their trading?

Theta can be defined as the change in an option’s value due to the passage of time if other factors such as stock price, volatility, and interest rates remain constant. Theta is one of the option Greeks that estimate how option values change if only one of the inputs changes.

Theta estimates the dollar amount of an option’s time value that will decay in one unit of time to expiration. The term “one unit of time” is typically defined as one calendar day. To learn more about the concept of the option Greek, Theta, view this segment of "Ask the Institute."

CBOE Volatility Index (VIX)