**Theta**, one of the Option Greeks.

Theta, a.k.a. time decay, is an estimate of how much the theoretical value of an option will decreases each day, assuming there is no move in either the stock price or volatility.

As mentioned in my previous post

**Selling Options,**Time Decay is an unique feature in Options (not in Stock, Futures, Forex, etc). All Options lose time value every day. It loses time value at a faster rate as you get closer to the expiry date.

Theta is expressed as a negative number in Option Chain. And there is only 1 Theta value for both Calls and Puts at the same Strike Price. See image below.

While all Calls and Puts has negative Theta (they lose value each day), your position can have either negative or positive Theta.

__Theta and the position in the market:__- Long Calls and Long Puts always have negative Theta
- Short Calls and Short Puts always have positive Theta

When you Long an option (Calls or Puts) say at $1.00, with Theta say at -0.10, your option will be $0.90 after 1 day (assuming there is no move in either the stock price or volatility). Your Long position lose value by 0.10. Thus, Long Calls and Long Puts always have negative Theta. Remember all options lose time value very day.

When you Short an option (Calls or Puts) say at $1.00, with Theta say at -0.10, your option will be $0.90 after 1 day (assuming there is no move in either the stock price or volatility). While the option price lose -0.10, your Short position actually gain value by 0.10. That is the reason why Short Calls and Short Puts always have positive Theta.

It is not so straight forward when you have a Spread, where you have a Short options and a Long options. Take for example, the N225 Jun12'14 +17500 -17250 Call Bear Spread in the diagram below.

N225 Jun12'14 17250 Call -1.8672

N225 Jun12'14 17500 Call -1.5954

While both of the Call options (17250 and 17500) are having negative Theta, The Call Bear Spread is having a positive Theta. This is because in Call Bear Spread you Short 17250 Call and Long 17500 Call. The Short 17250 Call will have positive Theta and the Long 17500 Call will have negative Theta.

+1.8672 - 1.5954 = 0.2718

Thus, the Call Bear Spread is in fact having a positive Theta of 0.2718, as indicated in the Quote Panel above. The Call Bear Spread position will gain 0.2718 value after 1 day (assuming there is no move in either the stock price or volatility).

For selling vertical spread (credit spread), we will always have positive Theta. Our vertical spread (credit spread) will gain value slowly each day.

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