Unit 3 · Level 1 · The greeks
Theta: the daily rent
You met time decay in Unit 2. Theta is its dial. Read it like rent: theta −€0.05 means holding this option costs about €0.05 per day, paid whether the stock cooperates or not. Long options are a bet that the move you catch is worth more than the rent you pay while waiting for it.
Free to play. No ads, no token, no account needed to start.
What you get asked
Your option's theta is −€0.05. All else equal, tomorrow it will be…
Theta is quoted in currency per day, not percent. Small numbers, but they compound into the biggest silent cost in options.
Option buyers pay theta; option ___ collect it.
Time decay isn't friction lost to the void. It's a transfer: the seller is the landlord collecting your daily rent.
Add up the rent on a stagnant position, in order.
For an option holder, a flat week is a paid week. The longer nothing happens, the bigger the move you need.
When is paying the daily rent worth it?
That's the whole trade in one line: expected move versus cost of waiting. If the move you forecast doesn't beat the theta bill, skip it.
Theta puts a clock on every long option. What follows?
In the Trading course, a stock position could wait out a slow thesis. An option can't: the thesis must arrive before the ice melts. 🐜
The rest of this unit
Delta, theta, vega, gamma: the four dials on every option's dashboard.