Home MarketXLS
Dashboard MarketXLS
Screener MarketXLS
Options Profit Calculator MarketXLS
Stock Ranks MarketXLS
Spreadsheet Builder MarketXLS
Documentation MarketXLS
Logout MarketXLS

Options Theta

Written by  Shubham Shah on 
Thu Feb 18 2021
 about OptionsOptions strategies
Options Theta - MarketXLS

Meet The Ultimate Excel Solution for Investors

  • Live Streaming Prices Prices in your Excel
  • All historical (intraday) data in your Excel
  • Real time option greeks and analytics in your Excel
  • Leading data in Excel service for Investment Managers, RIAs, Asset Managers, Financial Analysts, and Individual Investors.
  • Easy to use with formulas and pre-made sheets
Options Theta - MarketXLS

What is options theta?

The importance of options Greeks is hard to assess. But, according to most options traders, you get hooked once you start looking at them because they convey a tremendous amount of information about the price of an option. The most important ones are the delta and theta. Delta talks about the change in the price of an option, i.e., premium with the change in stock price, while theta tells how an option will be priced with time. Theta deals with the time decay of options.

Negative theta means the price of an option decreases with time and vice versa. For example, if an option’s theta is -0.20, that option’s price will fall $0.20/day. The price of the option will fall by $0.40 in two days and so on. Theta is always negative for an option buyer because the price of an option decreases as the stock price approaches the expiry date. The only way a buyer can gain is if the stock price surpasses the strike price. However, a seller can experience a positive theta as he can first sell an option and buy it at a lower price.

How is it calculated?

Theta or options Greeks as a whole are not just limited to derivatives (options in particular). The concept of Greeks has been there for ages, and they are extensively used in other finance areas. Black Scholes model is used to calculate all the option Greeks, including theta. However, according to the definition, theta can also be calculated by merely deriving an option’s value concerning time.

General formula:

Options Theta

Where:

V = value of the option (intrinsic + extrinsic)
t = time to expiry

How to use theta?

A seller can always get a positive theta, so he can keep selling OTM (out the money) calls. But a buyer is at a disadvantage as the theta is always negative. A buyer can minimize his risk by buying an ATM (at the money contracts) or at prices very near the expiry. He will also gain if the stock price surpasses the strike, also known as the intrinsic value of a stock. There are few strategies based on this concept, most significant being calendar spread, Iron Condor, and vertical spreads.

Volatility will play a significant role in defining the profitability of a particular contract. With minimal risk in the form of premium, options can be considered very lucrative when volatility is irrespective of which side the stock moves.

Using marketXLS

MarketXLS is an ad-on that can be embedded into MS excel to analyze stocks based on fundamentals. The package also includes option chains with all the information a standard chain provides. But the edge marketXLS has over its peers because the data can be directly imported into MS Excel, which is the most robust software for data analysis. Below is an option chain of MSFT (Microsoft Corporation). I have highlighted the column for theta for the expiry of 19 Feb 2021.

Options Theta

You can check when the theta is minimum and buy contracts accordingly. That way, you can minimize risk. There is also a column for implied volatility, which you can use to maximize profits.

Conclusion

In a nutshell, the concept is similar to the time value of money. Like, the value of money diminishes with time, the value of options also decreases when it gets nearer to the expiry date. Options theta works in favor of a seller and against a buyer. A buyer cannot take advantage of theta, however, he can minimize risk by buying ATM and maximize profits with the help of volatility.

Disclaimer

None of the content published on marketxls.com constitutes a recommendation that any particular security, portfolio of securities, transaction, or investment strategy is suitable for any specific person.

The author is not offering any professional advice of any kind. The reader should consult a professional financial advisor to determine their suitability for any strategies discussed herein.

the article is written for helping users collect the required information from various sources deemed to be an authority in their content. The trademarks if any are the property of their owners and no representations are made.

References

Learn more about theta calculation here.

Learn more about theta trading strategies here.

Ad slot not ready
#1 Excel Solution for Investors

Get Market data in Excel easy to use formulas

  • Real-time Live Streaming Option Prices & Greeks in your Excel
  • Historical (intraday) Options data in your Excel
  • All US Stocks and Index options are included
  • Real-time Option Order Flow
  • Real-time prices and data on underlying stocks and indices
  • Works on Windows, MAC or even online
  • Implement MarketXLS formulas in your Excel sheets and make them come alive
  • Save hours of time, streamline your option trading workflows
  • Easy to use with formulas and pre-made templates
Call: 1-877-778-8358
Ankur Mohan MarketXLS
Welcome! I'm Ankur, the founder and CEO of MarketXLS. With more than ten years of experience, I have assisted over 2,500 customers in developing personalized investment research strategies and monitoring systems using Excel.

I invite you to book a demo with me or my team to save time, enhance your investment research, and streamline your workflows.
Implement “your own” investment strategies in Excel with thousands of MarketXLS functions and templates.

MarketXLS is a complete Excel stock solution

Kevin Hsu

StockKevin.com

I have used lots of stock and option information services. This is the only one which gives me what I need inside Excel

Lloyd Lenase

Option Day Trader

MarketXLS is a data junkie’s dream. It gives me the flexibility to mine for hidden treasures.

Dave

Swing trader since 2011

I like to access historical closing prices on a particular date. That makes tracking performance easy.

Patrick Cusatis, Ph.D., CFA

Associate Professor of Finance - Penn State University

Get Access to 1 Billion Usable Market data points IN YOUR EXCEL SHEETS WITH EASY TO USE EXCEL FUNCTIONS

Get started today

🎉 Exciting news! 🎉

You are invited to join our Discord Channel.

Interact, learn, and grow with experts in the markets!

Join our Discord