Theta

What is Theta?

Author: Himanshu Singh
Himanshu Singh
Himanshu Singh
Investment Banking | Private Equity

Prior to joining UBS as an Investment Banker, Himanshu worked as an Investment Associate for Exin Capital Partners Limited, participating in all aspects of the investment process, including identifying new investment opportunities, detailed due diligence, financial modeling & LBO valuation and presenting investment recommendations internally.

Himanshu holds an MBA in Finance from the Indian Institute of Management and a Bachelor of Engineering from Netaji Subhas Institute of Technology.

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Reviewed By: Christopher Haynes
Christopher Haynes
Christopher Haynes
Asset Management | Investment Banking

Chris currently works as an investment associate with Ascension Ventures, a strategic healthcare venture fund that invests on behalf of thirteen of the nation's leading health systems with $88 billion in combined operating revenue. Previously, Chris served as an investment analyst with New Holland Capital, a hedge fund-of-funds asset management firm with $20 billion under management, and as an investment banking analyst in SunTrust Robinson Humphrey's Financial Sponsor Group.

Chris graduated Magna Cum Laude from the University of Florida with a Bachelor of Arts in Economics and earned a Master of Finance (MSF) from the Olin School of Business at Washington University in St. Louis.

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Last Updated:July 22, 2022

Theta is a term used in trading to measure the rate of decline in the value of an option caused by time passing. This is independent from the actual value of the underlying asset. The theory behind theta is that as the exercise date approaches, the value of the option declines as there is less likelihood of it moving a lot in price.

Theta is used to measure the risk associated with holding an option for a period of time, but in practice it is not that important as it does not take into account the asset price, so therefore is not used that often.

An example of theta would be:

  • An option has a strike price of $50.00
  • The theta of the option is 7.5
  • Therefore, for every day that passes the value of the option should fall by $7.50

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