Theta Explained: What is it & How to Trade it

[@Leetcodegirlca]

u look like the logo for wallstreetbets

[@WIZxKHALIFAxMAN]

LOL

[@id3034]

Lmfao

[@twincherry4958]

I'm dead

[@cyeeda44]

🤣🤣🤣🤣🤣🤣

[@CiptyTv]

When I watched this a month ago I had no idea what he was talking about but now i understand

[@scaretactictales5895]

Names cipty I guess that’s encouraging because I was just about to comment saying I feel dumber than I did before watching this.

[@Football-bv1ui]

@@scaretactictales5895 have a growth mindset and anything you want to learn will come with hard work

[@InvalidPersistentName]

@@Football-bv1ui who is that guy on your pfp?

[@melodictunezzz]

Relatable

[@ndaatweg00]

must be a retail trader with biden money :P

[@zernadjiya]

Would be better with a specific example about ATM vs ITM vs OTM THETA with correlation to the graph.

[@typical3477]

Theta gang

[@thehmongzelda]

Saw theta on another video, not sure what it is, came here. He talks about extrinsic value, not got to go look that up. Forgot what I was watching originally.

[@manimadhav3858]

ty so much all videos about options are superb

[@sipwhitemocha]

Woah it looked like he teleported in the beginning. Kinda cool and funny lol

[@danthemann6565]

Mike, thank you very well done very well delivered. Great video.

[@singularity7968]

I don't know why anyone would flat out buy an option. Theta will destroy you. You should be using spreads at the very least. Selling premium is the way to go.

[@Chessmapling]

it's all risk/reward isn't it? spreads hedge your risk and therefore reward. selling premium will never let you achieve wallstreetbets level of gain, but also loss lol.

[@narinderkumar8597]

Thanks for your priceless videos

[@skeeterskater5884]

If I understand the analogy of the two buckets- as time passes the hole in the buyers bucket gets larger, accelerating extrinsic value loss to the seller...

[@CarlosRodriguez-hp7uz]

So getting the longer one is better ?

[@898Alan898]

Is there a method in planning your vertical credit spread by checking the theta level prior to opening your trade?

[@udaan2001]

I am a professional index option trader. I buy options for the duration of one day to few days based on the parabolic SAR indicator. Presently I buy option at ATM. As per the discussion in the clip above, I am now thinking to move to ITM one or two strike price inside. This should help me reduce impact of theta on buy price. Do you confirm this conclusion?

[@emmanuelameyaw9735]

Why would option price decay when you freeze the underlying stock price and volatility? Because time reduces value of the option?

[@mamtabhambani3186]

Hi... could you please thrown some more light on how theta and gamma are inversely related since gamma hedge is done for arge movement s in stock process whereas in short run it's Delta that we expect to fluctuate

[@tastyliveshow]

Sure! If you have a specific question feel free to shoot it to our support team at [e-mail]

[@bannedagain365]

so when you are in the money theta is zero. the premium is uaffected by time decay?

[@tastyliveshow]

When you are in the money, if there is time left until expiration your option still has extrinsic value. It will just have a mixture of intrinsic and extrinsic value, instead of just extrinsic value OTM. As expiration nears, if the option is still ITM it will start to lose all of its extrinsic value and trade for close to pure intrinsic value.

[@EthanNoble]

Thanks for this!

[@user-wi3yx3gy2o]

I bought a 9-day at the money put option on Netflix. The stock dropped the stock dropped over 3 percent (12 dollars). The put dropped overnight 9 percent ($2.50). In really pissed since I figured I’d make money on a less than 24-hour position in a 9-day put option if the stock dropped 3% overnight.

[@tastyliveshow]

That's the risk in buying short term options - you need the stock to move enough to make up for the extrinsic value you paid for, and in this case it likely didn't.

[@user-wi3yx3gy2o]

tastytrade It seems insurmountable. Next time, I’ll check the Greeks more carefully and probably sell a call if I buy a put and use a real or notional stop loss. This is awful losing money being right on direction. How do these people claim to make money on setups buying option spreads? That’s a near 50-50 proposition anyway, and It’s just insane how much is lost to non-intrinsic value factors. Yeah no. At most, I’ll create a low cost synthetic future with a stop. Next time. I have more success buying or selling stocks outright with stop buy orders that buy the stock if it moves up or down after big news. Who makes money buying straddles and strangles?

[@Infinitelightwizardry]

Thank you, I’m understanding these more and more now!🙏

[@tranlangamingo5409]

great vid thanks

[@bhagyashingale5663]

In terms of absolute value yes but in terms of % of option price OTM decays more heavily

[@entertainmentinternational1087]

If I sold a call and it passed my strike price, is it best to buy to close the option on expiration day because it will have decays more.so if I buy it day expiration I pay more money but ill make more on share price appreciation? Theta is -2.5 7 day option

[@tastyliveshow]

Yes if you hold a covered call to expiration the short call will lose all extrinsic value and your trade will be trading for intrinsic value, or max profit in this case.

[@lmathews5608]

Thanks dude, I'm just confused cause I bought a put saying a stock that's 1.020 price would go down to 1.00. At first it went up to 1.200 then now it's 0.98 but I'm still losing -7.50. Expiration date is 06/19. What's up with that loss? I bought at $20 for max profit of $80, the stock is VAL (Valaris plc)

[@tastyliveshow]

You likely paid a ton of extrinsic value for that out of the money put, and every day that passes you lose that extrinsic value. If you paid $0.50 for that $1 strike put fur example, you'd need the stock at $0.50 at expiration just to breakeven.

[@lmathews5608]

@@tastyliveshow totally makes sense now, thank you very much man

[@rastanurahrt9686]

May i know, How theta will behave during holidays. I mean, will it get vary because of holidays.

[@tastyliveshow]

It's very hard to predict theta decay in general - it's more important to understand what side of theta you're on, and realize how that affects your trade overall

[@ryanjones7681]

If you're giving financial tips, But can't say "Debt" right... There's a problem

[@2forfun007]

Wow, didn't understand a thing from this, sounded as confusing as trinity

[@50tigres79]

agree. I didn't understand anything either.

[@nationalnotes]

Try and understand each and every term as it relates to theta decay. As you understand each term, the main concept will come together...;)

[@investzaku]

One thing is confusing Theta decreases the time value , What about intrinsic value does it change with the passage of time also?

[@tastyliveshow]

Hi Zahid! Here is more on option value and its behavior! www.tastytrade.com/tt/learn/option-value

[@SomethingUnremarkable]

Intrinsic value is how far itm the option is

[@wijaykrrishnajonnalagadda6615]

Hey Mike thanks

[@Ryan-ip7li]

Great explanations, thanks dude

[@UmaMahesh-wu1jm]

Live example animation video How to works option greeks

[@kiklocus4660]

you basically eliminated option buyers from the perspective, your perspective is completely focused on sellers

[@Bad4Good2]

So is theta good for Puts?

[@tastyliveshow]

theta is good for all short options, as it helps the option extrinsic value to decay to $0 which is beneficial to the seller.

[@vincentwolf4263]

Wait a sec... so the theta decays faster AND slower as you get closer to the end?! That's it. I quit.

[@kmarquez6362]

Hi Question: If selling is the recomendacion because time decade is in your favor. How new traders like me can protect ourselves if the broker only let me to trade longs?

[@tastyliveshow]

Trading spreads is one way we offset the negative aspect of long options - if we can't trade spreads, we don't have many options to mitigate this negative decay.

[@kmarquez6362]

Thanks for the answer

[@shanekhnan1829]

Mike thank you for the videos. One question. I use Robinhood for trading. The only way to sell option in robinhood is to own the stock, covered call. When I try to sell an option it forces me to buy the stock before I can sell it. Does this mean that Robinhood is only for purchasing stocks?

[@tastyliveshow]

You may only have permission for covered calls - I'd reach out to them directly for more info! I place all my trades through tastyworks.com

[@caroarceo]

But at your 5 DTE you can let it expire worthless and collect premium

[@ZupE891]

Those graphs only show that the value increases when it is ATM... which really doesn't explain a lot. You should of had a graph that shows the decay over time. and how that relates to the strike price.

[@talavalash6275]

Dead wrong about decay being bad for debit spread. if the both legs are in the money, you won't get the full value until the extrinsic value is decayed.

[@jimhall3810]

You need to slow down. People need to absorb the information. Watching it multiple times doesn't help since you are moving too fast for me to understand. Slowing the video helps but it would be better if you just talked at a normal speed. If you can't do this get someone else to do these videos for you. There is plenty of information and seems well put together but it's worthless if it can't be understood by a new options trader.

[@niruplal4067]

Bro your video always confuses, you are presuming everyone know about the terminology of what you are talking, you need go little easy you your presentation with good basic examples, so the beginners can also understand your videos always sounds like only for professionals please you can do much better thanks, its my genuine review

[@jesseclingan]

There are a lot of videos on tasty trade.com that walk you thru beginning concepts and they build on it. Greeks are very confusing at first so you should check out the site and progress with the info complexity. Tons of great info - and I don't even work for the guys! lol

[@Mon_beaumonde]

Great video! Everything is clear , difficult concept is explained in a way that a butthead would grasp

[@jackworley2378]

Butthead here. Can confirm.

[@jkk20]

they don't even explain it correctly for people who know nothing. there are far easier ways to explain it to simpletons while using half of the video lenght

[@capitocapital]

Great video except the end with that horrible voice cutting through my ears

[@brandonce9521]

You cant explain it to a 5 year old

[@bozzicone]

speak too fast