A STUDY ON THETA DECAY AND ITS IMPACT ON OPTION PREMIUM

Abstract

Option contracts provide leverage and profit potential, but their value decreases over time because of theta decay. This study looks at the relationship between option premium pricing and theta decay. It investigates how variables such as volatility, time to expiration, and strike price affect both. By measuring decay rates and examining real-world instances, we have attempted to create useful trading techniques that reduce theta’s impact and improve option selection for various time horizons and desired outcomes. This study may improve option traders’ understanding and decision-making, potentially leading to better trading performance.