Markets Home

Active trader

Hear from active traders about their experience adding CME Group futures and options on futures to their portfolio.

Find a broker

Search our directory for a broker that fits your needs.

CREATE A CMEGROUP.COM ACCOUNT:

MORE FEATURES, MORE INSIGHTS

Get quick access to tools and premium content, or customize a portfolio and set alerts to follow the market.
Market Data Home

Real-time market data

Stream live futures and options market data directly from CME Group.

E-quotes application

Access real-time data, charts, analytics and news from anywhere at anytime.

CME DATAMINE:

THE SOURCE FOR HISTORICAL DATA

Explore historical market data straight from the source to help refine your trading strategies.
Services Home

Uncleared margin rules

Understand how CME Group can help you navigate new initial margin regulatory and reporting requirements.

Calculate margin 

Evaluate your cleared margin requirements using our interactive margin calculator.
Education Home

Now live: ESG solutions

Manage the risk associated with renewable energies, environmental change and sustainable investments.

Create a CMEGroup.com Account: More features, more insights

Get quick access to premium educational content, including expert-led webinars, a real-time trading simulator, and more.
      Course Overview
      • Options Delta - The Greeks
      • Options Gamma – The Greeks
      • Options Theta - The Greeks
      • Options Vega - The Greeks
      • Options Premium and the Greeks
      Option Greeks
      You completed this course.Get Completion Certificate

      Options Theta - The Greeks

        • Also available in

        • 简体中文
        • 繁體中文

      Video not supported!

      Futures contracts can be an effective and efficient risk management or trading tool. Their performance is basically two-dimensional, either you are up money or down depending on the entry price point and whether the market is up or down versus your position.

      But with options on futures there are more dimensions, or forces, acting on the price or premium of the option.

      There are metrics to measure each of these different forces impacts on the premium of an option. These metrics are often referred to by their Greek letter, and collectively known as “the Greeks.” 

      Theta

      Delta and gamma measure the effect of price movement of the underlying on the option premium. As we demonstrated in previous videos, both are dynamic as to the option being out-the-money (OTM), at-the-money (ATM), or in-the-money (ITM).

      Now we will investigate the effects of time on an option. The Greek that measures an option’s sensitivity to time is theta. Theta is usually expressed as a negative number. Be careful to always make sure what time is referenced in the model you are using.

      For example, if the value of an option is 7.50 and the option has a theta of .02. After one day, the option’s value will be 7.48, 2 days 7.46. etc.

      Theta is highest for at-the-money (ATM) options and lower the further out-the-money or in-the-money the option is. The absolute value of theta of an option that is at- or near-the-money rises as the option approaches expiration. Theta for an option that is deep in- or out- the-money falls as the option approaches expiration. 

      In the prior example, theta was a constant value of .02 for all three days. In reality, the theta loss increases as the option approaches expiration. 

      Example

      In March, a September option will have a daily time decay of .02. By August, the daily decay will increase to .06 and the option more quickly decays.

      Time decay is not linear, and moreover, for ATM strikes decay continually accelerates into option expiration. 


      Test your knowledge

      Related Courses
      /content/cmegroup/en/education/courses/option-greeks/theta
      • {{ course.name }}
      Previous Lesson
      Next Lesson
      Course Overview
      Get Completion Certificate
      Previous Lesson Next Lesson
      • YouTube
      • Twitter
      • Facebook
      • LinkedIn
      • Instagram
      • Rss

      CME Group is the world's leading and most diverse derivatives marketplace. The company is comprised of four Designated Contract Markets (DCMs). 
      Further information on each exchange's rules and product listings can be found by clicking on the links to CME, CBOT, NYMEX and COMEX.

      © 2021 CME Group Inc. All rights reserved.

      Disclaimer  |  Privacy Policy  |  Cookie Policy  |  Terms of Use  |  Data Terms of Use  |  Modern Slavery Act Transparency Statement  |  Report a Security Concern