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Option Greeks Theta

In this video excerpt from our options mentoring course, Morris gives us some insight on understanding the difference between ATM Greek Theta and OTM Greek Theta. Several Options Theta Concepts are covered.

Morris is the founder of San Jose Options.
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Option Greeks Theta by SJ Options

Video Transcript

..is that, in the options industry, we all know and we’re all aware of that theta accelerates is becoming into expiration but there’s an oversight. The oversight is that this is only true close to the money. When we’re farther out of the money, 20 delta, 25 delta, right around this range on either side, calls or puts, what we have is a situation where the theta actually doesn’t accelerate. In fact, it starts to decelerate towards the last month or so. This is easily illustrated in Think or Swim and I’ll show you in just a minute.

Let’s move over to that just a second. Let’s look at a couple more slides. To further illustrate this point I’m trying to make, notice here, again, what I’m saying is theta is lower here compared to down here. You have your trade using about a 10 delta, when you’re farther out in time, you actually have a situation where you have more theta here than you do way in here about 30 days. And the whole time travelling right here, during the travel of this trade, your theta doesn’t really increase much at all. However, if you are in the middle here, it will increase quite a bit. And this is the misconception in the options industry.