Chapter 3 | Theta: If the market doesn't move, options may also lose money every day The indicator that is most likely to create the illusion of "stable earning" in options may be Theta. Theta measures how much the theoretical value of an option will decrease or increase one day after the passage of time, assuming other conditions remain roughly unchanged. For most people who buy options, Theta is usually negative; For those who sell options, Theta is usually positive. For example, the Theta of an option is -0.08, which can be roughly understood as a possible decrease of $0.08 in the value of each option per share over one day without significant changes in the underlying price and implied volatility. After multiplying by 100 shares, a contract loses approximately $8. That's why buying options based solely on the right direction is not enough. You not only need to judge the ups and downs, but also determine when the market will occur and whether the magnitude is large enough. The direction is correct, but the market is coming too slowly, and the Delta earned may not be enough to offset Theta's losses. The value of time does not decrease uniformly. Many flat options decay faster as they approach expiration. At the beginning of the purchase, it felt like there was only a little less each day, but in the last few days, the time loss may significantly accelerate. However, the decay paths of deep real value and deep virtual value options are not exactly the same, and it cannot be simply assumed that all contracts suddenly reset to zero on the last day. Although the seller stands on Theta's side, it does not mean that they lie down and collect money every day. Theta is essentially a risk compensation paid by the market to you. What you earn is the passage of time, while bearing the risks of short Gamma, short Vega, and extreme market conditions. Once the target fluctuates significantly, the Theta earnings accumulated over many days may be consumed in one go. Financial report CPI、 Before and after events such as the Federal Reserve meeting, Theta and Vega should also be viewed together. The implied volatility before the event may remain high, and the time loss may not be fully reflected in the price; After the event occurs, even if there is still time before expiration, a rapid decline in IV may significantly reduce the option price. In actual trading, I will look at the remaining maturity, net Theta, and position structure. If the daily time loss has made oneself uncomfortable, it means that the position may be too heavy or bought too close. For sellers, it is also necessary to calculate how many days of Theta earnings may be swallowed up by a major market trend. The time of an option is not the background, it is itself a part of the price. Holding the position still does not mean the risk remains unchanged. The account is settled every day according to the time.