QUIZ 9.6: Theta

Complete this definition of theta:
Theta is a measure of the option price’s sensitivity to time. An option’s theta indicates the rate at which the option’s value is currently changing…

Imagine you buy a call option with a theta of -0.25. If one day passes and everything else remains constant, what change in the value of your position would be expected?

Imagine you buy a put option with a theta of -0.37. If one day passes and everything else remains constant, what change in the value of your position would be expected?

Imagine you sell a put option with a theta of -12. If one day passes and everything else remains constant, what change in the value of your position would be expected?

Where an option’s strike price is in relation to the current underlying price will affect the option’s theta. What type of option typically has the most theta?

The market’s view on future volatility, as expressed via the option prices and therefore the implied volatility, will have an effect on option thetas.

Which of the following sentences is correct?

Given what you learned about the theta for multi-leg option positions in lecture 9.5, what is the total theta of a position consisting of the following two options:

+1 call with a theta of -2.45

+1 put with a theta of -1.22

Sticking with multi-leg positions, what is the total theta of a position consisting of the following options:

-1 call with a theta of -0.48

+1 put with a theta of -1.08

If we define two options as follows:

Option A with a theta of -0.06

Option B with a theta of -0.11

What is the theta of the following position:

-8 Option A

+6 Option B