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Derivatives, Futures & Options

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Derivatives, Futures & Options

Theta

The rate at which an option loses value as time passes, holding everything else constant.

Theta = Change in Option Price / Change in Time, conventionally expressed per calendar day and negative for a holder
Derivatives, Futures & Options

Time Value

The portion of an option's premium above its intrinsic value, paid for the possibility of a favourable move before expiry.

Time Value = Option Premium - Intrinsic Value