Definition of Theta:
A plane angle.
Theta is drawn from the Greek alphabet and has numerous meanings across different fields. In the world of economics, theta can also refer to the reserve ratio of banks in economic models.
Theta is a measure of the rate of decline in the value of an option due to the passage of time. It can also be referred to as an option's time decay. If everything is held constant, the option loses value as time moves closer to the maturity of the option. Theta is generally expressed as a negative number and can be thought of as the amount by which an option's value will decline every day.
Ratio of the change in the price of an option to the decrease in the time to its expiration. Theta accelerates as the option approaches expiration, and is at its highest immediately before the option expires. Also called time decay.
Temperature (especially in degrees Celsius).
A polar coordinate.
The eighth letter of the Greek alphabet (Θ, θ), transliterated as ‘th.’.
How to use Theta in a sentence?
- Theta refers to the rate of decline in the value of an option over time.
- If all other variables are constant, and option will lose value as time draws closer to its maturity.
- Theta, usually expressed as a negative number, indicates how much the option's value will decline every day up to maturity.
- English borrowed the digraph th from Latin, where it served to transliterate Greek theta; th superseded other symbols for the dental fricative following the advent of printing.
Meaning of Theta & Theta Definition