Another Theta Question

Discussion in 'Options' started by the, Feb 8, 2012.

  1. the

    the

    In general, when does time decay start to occur for a LEAP? Or when does it realy start to pick up? 3 months till expiration? Anybody have a graph?

    Obviously there are many other factors involved but assuming an ATM option, constant IV, interest rate, liquidity.

    Thanks.
     
  2. spindr0

    spindr0

    Far from expiry, daily decay is minimal. With each day that passes, it increases slightly, getting faster and faster as expiry approaches.

    Any decent option book will have a graph of theta decay. If you can't afford one :), set up a BS spreadsheet. Can't afford Excel :) ? Go to any web site that provides the Greeks. Set up your hypothetical position and then vary the time.
     
  3. the

    the

    Lol, thanks!
     
  4. NPTrader

    NPTrader

    The way I think of theta is to divide one day by the total number of days to expiration. This will be the amount of theta decay for a single day. But you just repeat the exercise for each day, and subsequently the percentages get higher until you've expired.