The "daily Call" From Option Alpha: Options Trading | Stock Options | Stock Trading | Trading Online

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re going to be talking about Theta of an option contract. The Theta of an option contract is a critically important concept for you to understand, especially if you’re a new options trader, but even if you’re an experienced options trader, hopefully you get a lot out of this. Theta is basically the Greek representation for time decay. I always think T from Theta as related to T for the time decay of the option contract. Now, as opposed to many of the other Greeks in option pricing formulas and inputs that go into it, Theta is really the one thing that is the continual constant and that’s because time marches on. It never slows down, stops or speeds up. Every day passes at the same interval and the same frequency as the day before. Theta is a really good conceptual understanding of how time passes in the option contract and how the passage of time can erode the value of an option contract faster and faster. We