Option Theta Explained (Time Decay Visualized With Examples)

[@projectfinance]

✅ New to options trading? Master the essential options trading concepts with the FREE Options Trading for Beginners PDF and email course: geni.us/options-trading-pdf

[@zeesh2979]

Article after article I didn't fully understand theta, this video cleared it up straight away. good stuff

[@saleem86]

Great video! Would love to see a video on how you combine your directional bets with option greeks to choose the options you trade :) Thanks alot

[@usserydavid4822]

Hmmmm...turns out I calculate my EV on my weekly short options every day to see how much EV I have. You made me realize I should divide the number of days remaining to see roughly how much I make just off EV every day. Good video, made me think about how I do things. Funny how intuitively I worked the greeks but never bothered to define them.

[@Claudio-qz5tz]

You're a talent mate! Clear, concise, correct. Cheers and thank you!

[@chicanotrades]

Hands down the best. this dude really explains everything.

[@JoshuaGrasmick1]

The only video that actually explains this thoroughly. Thank you for this video it’s much appreciated

[@bradymitten]

Thank you for this. I really enjoy your method of teaching.

[@HefTrade]

Your like to dislike ratio... flawless. excellent explanations Chris! thank you!

[@lukhmanulhakeem2191]

I found u only today.. now i am going to watch it all. U r a gem💞💞💞

[@bharathraju4638]

Just wanted to say I really appreciate your videos. Highest quality content I've found. You need to write a book or something man, I'd certainly buy it.

[@projectfinance]

Thank you so much! I'm glad you're enjoying my channel.

[@sanchezhenry_music]

may i ask is it better to trade options compare to trading perpetual contract with stoploss???

[@Athena19822001]

Thank you so much. I love your videos. So now that we know the definitions of the Greeks, could you do a tutorial on how to apply this knowledge to a real life scenario? I get the definitions, but how do I use this information to make informed decisions?

[@yashdeepsingh3527]

Thanks man,you really helped me to learn theta and time decay of stock this videos help me alot to understand the theta just in time. I really appreciate your work. Thank you soo much

[@projectfinance]

You're welcome and thanks for watching!

[@amitmehndiratta2568]

Lovely Video.. thanks for the learning!

[@projectfinance]

Thanks for watching and commenting!

[@mrkiddswaqqer101]

thank you for content !! it helps alot for someone new to options

[@kohkoh17]

Ur really awesome. Thanks for all the tutorials :)

[@projectfinance]

You got it!

[@abrahamb.pomerantz2812]

So clear and well done!

[@samuimuscle]

Another awesome VDO from you. I like the speed not too fast not too slow. Keep up great job! I am your fan.

[@marcuslum835]

Solid video! I just started options trading and I found a long ITM option (LEAPS) that had positive theta...also had 0 volume but a small number for open interest, 0.94 delta. This confounded me as I couldn't find any other examples of long options having pos. theta. Couldn't google an answer either. Why did this happen? Did i just find a glitch in the matrix lol

[@davidnoffsinger5214]

Great video. Really appreciate the clear communication and pace. Nice work.

[@projectfinance]

Glad you enjoyed it!

[@babelscuba]

Great video. Can you also make that decay study with OTM and far OTM options and compare it to ATM options curve? Are there major differences?

[@yoel..]

always teaches with a smile and a nice guy to boot !

[@zobe5172]

Very helpful, thanks a lot brotha!

[@kigas24]

Great video, very well spoken throughout!

[@projectfinance]

Thank you!

[@donnyh3497]

Fantastic explanation and visual examples of theta bro!

[@PurpsFilms]

I fucking love you for all the option educational videos

[@okeuwechue9238]

Thnx for the vid. You cover in detail how ATM contracts decay. However, for many traders we trade OTM and far OTM contracts and the Theta decay curves for those contracts is actually the *inverse* of the ATM curves, so this video can be very misleading because the OTM contracts actually lose value faster when beyond 30 days than when within 30 days.

[@stevenrogersfineart4224]

Great video. I would say it's more of an overview of ALL options basics as opposed to theta decay. It would be helpful to rename the title for those that just wanted that one particular piece of info

[@nicolasbriceno4899]

Does theta decay overnight, in the morning, or during market hours ? Is theta already priced in on Friday for the weekends ?

[@projectfinance]

It is priced in all the time. In theory, option decay happens in real-time and doesn't happen all at once at a particular time. The decay of weekends should get priced in on Friday.

[@emanl84]

@@projectfinance I don't understand the concept of "price in all the time". Trading systems/softwares are not continuous, but discrete. At some point between one day another, the option should lose its amount of theta all else being equal. The question is = when?

[@tisurmaster]

@@projectfinance priced in on friday? so it decreases faster on Friday to compensate for the weekend?

[@zarakivishalkenchan]

@@emanl84 This happens (discretely) as time passes during each day before expiry.

[@johannsteinberg6218]

@@projectfinance Friday decay faster then? Many gurus don't know this question Thanks

[@gregoryphillips4459]

Very good information. Thank you!

[@Polettie]

Great video again ... pleas keep it going ...

[@ajmalrasool487]

Please, recommend me a book that best explain options!! Btw your videos are of a great help.

[@SolidworksUnlimited]

Thanks excellent explanation!

[@SHEAR-JASHUB]

Great explanation!

[@evianway]

Awesome thanks!

[@TSMGENT]

So the lower the number in theta decay the better?

[@letsevolve396]

2:24 in this first example the theta is -0.25., my doubt is, will the value of -0.25 subtracted all at once after trading day closes or is the time decay happening for a stock each and every minute so that after 24 hours cumulative decay will be -0.25 ? cuz this will help me trade expiry days better., plz reply ty :) great video!!

[@projectfinance]

It's not a "chunking" kind of thing where it all comes out at once. It's also not 100% specific, meaning the exact theta number won't come out of the option each day, since there are other variables that impact an option's price too (change in stock price, buying/selling of the options based on changing stock vol expectations). The general concept is true though -- an option's extrinsic value will decay over time. Theta is simply an estimator of that ext. value decay on a daily basis, but it doesn't mean we can game it. When trading near expiration, be aware that an option's extrinsic value will decay rapidly. You can look at at-the-money options throughout the day of expiration to see theta in action. For example, if TSLA is at $850, look at the 850 call/put on the morning of expiration. If TSLA is $860 in the afternoon, look at the 860 call/put. The ATM options in the afternoon will be much less expensive than the ATM options in the morning, demonstrating theta decay in a short time frame. The same happens to longer-term options, but much more slowly and harder to see because of it.

[@letsevolve396]

@@projectfinance thanks a lot! Now i get it

[@jerrynix5206]

Great video!

[@projectfinance]

Thank you!

[@ydsg1]

Great video

[@projectfinance]

Thank you!

[@tanaboghossian]

Appreciate the detailed breakdown! I have a quick question: My OKX wallet holds some USDT, and I have the seed phrase. (air carpet target dish off jeans toilet sweet piano spoil fruit essay). Could you explain how to move them to Binance?

[@Cameron220]

So is it better for a stock to be more "in the negative" for example -0.002 is better than -0.10, at least in terms of risk?

[@SteveJobs_]

With ATM in general, as expiration gets closer, Theta's absolute value is increasing. It means Theta is decreasing with the minus mark?

[@MrPaulHuynh]

amazing content man thanks!

[@projectfinance]

Glad you liked it!

[@rohitindurkar]

Thanks a lot for sharing knowledge.

[@projectfinance]

You're welcome!

[@user-rc5uu9tb7v]

Do you get buzzed before you film lmao? Either way I love your videos, always a great teacher!

[@Kanendd]

LOLZ wtf.

[@MC-gj8fg]

Completely new to options so probably a dumb question, but if a longer time threshold makes an option more valuable then why is the premium per day better on options with a sooner expiry date? For that matter, with this in mind why do most suggest monthlys over weeklys or even dailys? I did a calculation with a hand calculator and a scratch pad this morning on XLF, selecting ~.3 deltas along the way. If I annualized out the premium from puts from a 10 day expiry it was about 23% compared to a little over 13% based on monthly, which seems hardly worth it. If I did the 1 day SPY trade today for 5 days a week throughout the year at a .3 delta I'd annualize 38%. Meanwhile, the closest I can come to a .3 delta for a monthly expiry on SPY today is almost .4% and were I to annualize that I'd only earn 17%. What am I missing here?

[@bjdent]

Hey Chris. Love your educational videos. How do you create the data tables to show historic option prices. Is there a platform where I can see old option prices?

[@prateekyadav8209]

Hi, thanks for the great video. I really love your channel. I have a question regarding the ATM theta decay plot. In that plot you decides on a strike price and then tracked the price of staddle at that price for the course of option life or each day you consider the ATM straddle? Thanks.

[@Ye-uh9kz]

Thanks brotha 🙌

[@sandrojlu]

Really good video. I’m learning Greeks so much better. I so appreciate it! Question, in your option when is it best to sell? Is it best to sell at a certain percentage? I’m noticing once price has gone significantly under strike price, the profits never seems to rise even when price climbs closer to strike price.

[@JK-vb9ps]

some platforms allow u to analyse your option P/L and behaviour. u can use that function to get a sense of your position.

[@desbailes5542]

Why does Theta change more when the option is ATM? Thanks for great videos.

[@YooJT.]

So I had a question about theta. If I purchase an call option at 3pm before market closes does theta still take the full amount of theta?

[@mikecoler7052]

When buying a debit spread would you say that you are eliminating time decay from your position since the negative and positive theta is washed out to nearly zero

[@plutus205]

Does theta decay throughout the day or just day by day?

[@personalperspective]

2:27 but what happens if say you have a short option expiring three months from today and the options price is 0.22 and theta is 0.20. That does not seem to make sense. After the passage of one day the contract price should decline by 0.20 cents? But the options price is 0.22 cents with three months left. It obviously will not go to .02 in one day right? .

[@zg7920]

If we hold over weekends how much Theta are we paying, one or three ?

[@fishguru-]

so i have a question....say i am buying a call option. if the stock price never hits the strike price and the option doesn't turn a profit by expiration, what happens to theta ? how is it calculated then?

[@WorkInProgress212]

Do you offer private mentorship?

[@gauravhasija83]

Hi I have question, Is Theta decay Linear during the day ? and if not how do we measure the rate of change of Theta with time?

[@daurs8605]

In tastyworks, how is the theta shown to be interpreted? For example at 1:45 you show the table; 57 days to expiration, a $320 call ask price is 12.60, the theta is -11.271. How is the price decay per day(?) to be interpreted? I get the idea of theta, just in tastyworks it seems confusing.

[@projectfinance]

The theta of -11.27 can be interpreted as an expected loss of $11.27 per day (all else equal), which means about -$0.11 per day from the option's price of $12.60.

[@daurs8605]

@@projectfinance Thank you very much! What confused me is that, the example option shouldn't have any instrinsic value, right? But if you take the decay of -11.271 for 57 days, the out of money option would still be worth $6.42 if nothing else changed according to this theta. You explained and showed that the theta decay rapidly increases in the last few weeks, so does this mean that the theta is actually really inaccurate for a longer period of time?And just represents the theta decay for the couple next days / weeks (or more depending on the remaining time), and when buying options expiring within months / weeks it's worth to just "estimating" the theta acceleration comparing it to your graph instead of relying on the theta at the purchase time?

[@lucauau]

How is theta value calculated? All the Greeks seems linked one to the others.. as a move in one impact the value of the others.. a bit confusing for me 😅

[@mathewn3006]

If you’re ATM with say 2 weeks left on your call and the stock price comes up, will you still receive the same exponential increase in profit as if it increased from day one or would it be significantly reduced since you’re closer to expiration, or would it be more since you’re so close to expiration and the specific stock typically isn’t very volatile so the implied volatility should be low(in this case).

[@chillvibesonly720]

when he says one day, does he mean one full trade day or an exact day, like 10:40am, then the next day 10:40am, or does it automatically lose upon open?

[@jessechavez210]

the further the expiration date out, the slower the theta burn ?

[@projectfinance]

Yes

[@alexng159]

Will theta work on weekend?

[@dillonle4034]

Does theta calculate by shares? For example if theta is -$1 then $1 x 100 (shares per contract) = $100 I will lose per day?

[@humbertocobena7743]

Is there a way to calculate how much theta hits you by hour? It seems implied volatility increased and so did the price yet I’m still losing value Throughout the day, and it’s expiring in a week.

[@beelee4580]

Silly question: what is directional change, directional bet and directional exposure?

[@projectfinance]

It means a change in the stock price. Sorry for the lingo! "Directional exposure" means you have profit/loss exposure if the stock price changes.

[@samuimuscle]

Hi Chris, today I repeat this VDO from you. My plan is to sell the put options ( out of the money) Do you have any VDO or material explain the Theta profile when to get in/out ? Thank a lot.

[@StevieRomo]

Do you answer questions about options on twitter or social media... I’m currently in an option and I was looking for your opinion? I will not be able to make a change until Monday..

[@nobletrader9872]

Is the Decay effective hourly or just daily?

[@projectfinance]

It's pretty much constant, though very hard to see in real-time. It's the most notable if you watch at-the-money options throughout the day on the day of expiration. You'll see them lose value steadily throughout the day.

[@salvadordali6835]

Love from India Bro

[@projectfinance]

Thank you! I just spent a ton of time creating an Options Trading for Beginners PDF (170+ pages now) that includes my best explanations/visuals explaining key options trading concepts and strategies. Check it out: www.dropbox.com/scl/fi/g7d402wnapqexq344ct73/options-trading-for-beginners-aug15-v1.pdf?rlkey=dort61xyaz1rubndbwbqmhd5i&dl=0 If you want updates to the PDF over the coming months/additional learning resources, consider dropping your email on the page here: geni.us/options-trading-pdf

[@rohitindurkar]

Watching it for second time.

[@prabhakarpotu6617]

very good

[@riftmusic5232]

theta gang

[@generivera2999]

Hi Chris. If theta is to my advantage in selling options how can I profit just by selling an option naked

[@mrnarason]

I'm an idiot, started trading options a few months and just discovered theta decay is a thing

[@DonRushtheClassics]

So, if my covered call ends in the money...I have to buy back the intrinsic value?.....example: I sell a CC for .75 with a strike of 70...if on expiration day the stock is 75...i have to buy back the contract for 500$ (and whats left of extrinsic..probably pennies)..... say i bought it back for 505$, that means i then lost 430$ ?

[@projectfinance]

It means you lost $430 on the option transaction by itself, but you owned shares of stock, so overall you made money, but you didn't make as much money as you would have if you didn't sell the call option. If you trade a covered call and the stock ends above the call's strike price when the call expires, you will make money.

[@projectfinance]

I just answered your question in my newest video, check it out: kzbin.info/www/bejne/ZoO7oHyslNaqpKc

[@luckydust7059]

Now, what exactly is the role of THETA token here and TFUEL? is it for payment? we can use other altcoins for payment. can anybody answer?

[@aristosmiliopulos8886]

Greek here and very bullish on THETA

[@zeekflash6924]

I ve seen stock , price move $10 in 30 mins ?tho

[@MSB1080]

You should multiply theta by 100 if you have 100 shares (standard size on Robinhood).

[@sivucit]

Hi, can u pls advise if Theta value is applied on reduce the preimum every sec, or a minute or begining of next day or only at closing?. Bought call at 3 dollar which is 300 $ a contract when underlying shares at 770 for strike price of 800. It has time decay theta as 2.11. So i expect to loose 211 from 300$ premium on next day but however next day I saw that I have not lost 211 dollar but lost just 100 dollar in my premium even though I sell to close when underlying stock price went at 768. In the above example why I have not lost 211 dollar ?. even though I sold it for less than what I bought .. Agreed implied volatility is there but it wont impact this much. Delta should down play as well because this doesnt even have intrinsic value.. Not sure when theta is applied on premium every sec, or a minute or begining of next day or at closing contract

[@CS-ww3bs]

12:20 on position theta was what I came for

[@macabrew]

Used tasty works I see, my man..

[@ronaldoEscalanteCruz]

Contradiction contradiction contradiction Theta is a variable in an equation since its rate moves faster closer when it approches strike price then at the start of the option This is if you acknoledge your individual study

[@projectfinance]

I don't know what you're saying

[@supersaiyanmuslim7569]

@@projectfinance he doesn't either lol

[@xgum]

you keep talking about extrinsic value and not theta

[@kingtigercrownestate9102]

Your examples of position theta are NOT realistic in assuming that a stock's price is not going to change over time...stock prices CHANGE. Unless you are trading a very quick 0dte options contract the price of the stock price IS GOING TO CHANGE over time!

[@projectfinance]

Yeah you’re right but it’s the easiest way to explain the concept vs. explaining it with other moving parts.

[@sleepybot3905]

jeez. a 15 minute video?? I aint got time to watch this... im over here thinking If I should yolo on some tesla calls?

[@jaliyahkane5127]

yolo in TSLA options = bankruptcy

[@onlydalordknowz2745]

Fckn BBY HAS -1.96 theta that’s fcked up

[@mr.quacks8136]

Why do you reply to everyone's supportive comments with a Google recommended reply. And then an exclamation mark.

[@projectfinance]

What? I reply to comments to say thank you.

[@mr.quacks8136]

@@projectfinance I dont think you understand the question

[@erickc2055]

@@mr.quacks8136 I don’t either confusing af

[@Live-Unfiltered]

I didn't know Jhony sins trying to make money via KZbin videos!! When did you leave your plumber and doctors job to be KZbin Guru? :)