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(decay) - The sensitivity of an option price to the variable of time to Expiration. Remember that options only have a finite life (until Expiration), therefore theta is an extremely important sensitivity to consider.

Additional Comments:

Theta is the calculation of how the passage of time affects the price or premium of the option.

It is also important to notice that as you move farther away from the money, the theta tends to weaken as well. This is not a significant factor because the time decay is present on all the options. However, as a function of the overall value, the decay rate will be slightly slower.

Related Terms:

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