Option Greek ~ Theta

Theta is another Option Greek which plays important role for valuation of any option. 

In simple words Theta is "Rate of change in value of option with passage of time"

In other words Theta is "Time decay in value of option"

Ideally Theta value is always negative.

Now if we talk about Theta on trading perspective If you are buying of option then you should always look at volatility for underlying asset as well as of Option Volatility because if underlying asset price do not cross said strike price of option on or before expiry then entire premium may get eroded and ultimately buyer of option may end up making loss.  

Now if we talk about option writer's perspective then he always tries to write options for which are out of the money and till expiry of such option do not become At the omney or In  the money. 

Ideally option buyer should hold his buying position max to max for 3 days after that there may be erosion of premium (Theta) may result into loss. 

Now if we talk about writer's perspective then writer always expects erosion of premium or time decay (Theta) for easy earning. 

Please note Volatility in underlying asset and generally market conditions with news flow also plays significant role in valuation of option. 

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