I am still pretty green about the greeks. If I see that the theta is 0.042 for a certain option, does that mean: 1. $4.20 of time value is eaten up that day? 2. 4.2% of the time value is eaten up that day? 3. 4.2% of the entire option price is eaten up that day? 4. Or something else? Thanks.
$0.042 of time value is eaten up that day. You can calc it yourself by just doing prem1 = BS(t, ...) prem2 = BS(t-1, ...) theta = prem1 - prem2