7 Common Trading Terms and Definitions

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4. Theta value

Theta value is a negative value, which shows the decay of the option time value. Option, which has a longer time to expiry, has a lower absolute theta value than an option, which has a shorter time to expiry. A high absolute theta value means the option time value decays more than the low absolute theta value option. A theta value of -0.0188 means that the option will lose $0.0188 in its premium after the passage of seven days. Options with a low absolute theta value are more preferable for purchase than those with a high absolute theta value.

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