How i can calculate a tetha of option

Discussion in 'Options' started by jenek-cowboy, Aug 18, 2008.

  1. Does anybody know a formula for this parameter?
    I know a formula for delta and theorical price...But i don't see anywere how i can determine a tetha
  2. Hi jenek-cowboy,

    For a black-scholes theta, if interest rates and volatility are constant you will have:

    Time decay=interest received on cash equivalent of portfolio value - (0,5*variance*square asset value*gamma)

    cash equivalent portfolio is: Call value-(delta*asset value)


    Theta=R*(Call value-(delta*asset value)) - (0,5*variance*square asset value*gamma)

    It's very therorical (rates and volty keep constant).

    The best way to compute a theta is to price your portfolio value tomorrow (d+1) less the price of the option today.
    It'll provide you a way to modify the volatility for tomorrow price.
  3. rosy2


    like delta but take the derivative with respect to time instead of underlying
  4. Kash


    Simplest is:
    Theta = Options's Today Value - Tomorrow's value.

    Today's value <- You get it from the Market.

    Tomorrow's value:
    From that, compute the IV. Reduce the Days to Expire by 1. Using the other 3 required parameters (Underlying price, Strike Price, Call or Put), you can determine the tomorrow's value.
  5. Any good option broker will show the greeks of options including theta.
  6. 6 required parameters .

    Price of underlying
    Strike Price
    Days till exp ( subtract one for tomorrow )
    Implied volatility
    Risk Free Rate

    That will still only give you an estimate of one days theta since those variables for the most part are constantly in flux
  7. Hi Rosy,

    I'm sorry but it's wrong :D

    Theta is "minus" the first derivative of an option with respect of time.

    Because the direction of time scale. It's not an increase in time as usual for a derivative calculus, it's a time decrease. Maturity tends to be zero.

  8. Yes...It is true..But i want see a formula getting from a B-SH..
  9. I am from Russia :) ...And in our contry broker does't show any more information except that they get from exchange :)..
    From Russia with love :)
  10. beep1


    Good post M.

    The man still needs a formula for Gamma, which sould depend on how far one is on the density function.
    #10     Aug 21, 2008