Theta

CFA Level II
#21

I understand how option value decreases with the passage of time. What I am unclear about is when IT INCREASES “when theta is POSITIVE, as the time to maturity decreases, the price of both a call and a put option will INCREASE” "

#22

My test day equipment list includes crayons.

#23

This I can handle. If your strike is $5 and the underlying is at $500 the sooner it gets to expiration the more valuable it is. Right?

#24

deep-in-the-money calls would have a positive theta

#25

There is a dome in the center console of my car with balls in it. When I use feet action to move, the balls pop around in it. Its very fun.

#26

So yes. And a negative theta (say at or below the money) will push your value to zero as your opportunities to end in the money decrease with time.

#27

Niblita75 Wrote: ------------------------------------------------------- > There is a dome in the center console of my car > with balls in it. When I use feet action to move, > the balls pop around in it. Its very fun. Balls and feet action…I don’t understand anything else you just said, but this cannot be AF appropriate material.

#28

Theta will generally only be positive with very deep in the money options. If the stock price is $10 and the exercise price of the put is $50, then the put option price would have to be