{"id":1055,"date":"2019-09-15T09:16:11","date_gmt":"2019-09-15T09:16:11","guid":{"rendered":"https:\/\/uat1.gettogetherfinance.com\/blog\/?p=1055"},"modified":"2025-10-10T17:31:26","modified_gmt":"2025-10-10T12:01:26","slug":"theta-effect-for-options-buyer","status":"publish","type":"post","link":"https:\/\/uat1.gettogetherfinance.com\/blog\/theta-effect-for-options-buyer\/","title":{"rendered":"THETA EFFECT- BIGGEST RISK FOR OPTIONS BUYER"},"content":{"rendered":"\n
\"theta<\/figure>\n\n\n\n

\u201cTime is money\u201d we all know this adage.
If we have sufficient time to perform any task, whether it is competitive exam, whether we have to reach at any destination or any other then there is higher chance that we can do that.
Before we come to theta let\u2019s take an example.<\/p>\n\n\n\n


Suppose you are driving a car and you have to complete your journey of 100 km. if you have 24 hours to complete this task, then there is high probability that you will easily complete this task. But you have 5 hours then the probability will be moderate and if you have only 1 hour then probability will be very low, only one thing which can help you is your speed, otherwise one small tea break will take you in the trouble.<\/p>\n\n\n\n

No of hours for completion<\/th>Probability to reach<\/th><\/tr>
24<\/td>Very high<\/td><\/tr>
5<\/td>Moderate<\/td><\/tr>
1<\/td>Very low<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n

Now simply we are going to take it with option premium suppose we are choosing a strike price of 500 when stock is trading at 450 and we have complete 1 month. Probability of reaching at 500 will be very high because we have enough time. But if we have only 15 days then probability will be moderate and if have only 5 days then probability will be very low.<\/p>\n\n\n\n

Suppose we have reached at 460 and 15 days passed, then it will a challenge to reach another 40 point in just 15 days. Like our car speed our underlying speed will also matter.<\/p>\n\n\n\n

UNIVERSAL TRUTH:-<\/b>Time value will be zero at the time of expiry and Theta is time value component.<\/p>\n\n\n\n

Theta is not constant nor linear
\"Theta<\/p>\n\n\n\n

As we can see in graph amount of decay indicated by theta tends to be gradual at first and accelerates as expiration approaches.
If stock does not have tendency to move very fast then we have to keep in mind that stock should have enough time to reach at the desired level.<\/p>\n\n\n\n

Also Read:<\/strong> Stock Split and Options Trading<\/a><\/p>\n\n\n\n

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