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Theta is one of the Greek factor sensitivities used by traders to measure exposures in derivatives portfolios. It measures a portfolio’s linear exposure to the passage of time. Specifically, it tells you how rapidly a portfolio’s market value will change with time, assuming that all market variables “underliers, implied volatilities, interest rates, etc.” do not change.
Portfolios which have positive gamma or vega usually have negative theta. If other market variables remain constant, they will lose value over time. Portfolios which have negative gamma or vega usually have positive theta. If other market variables remain constant, they will gain value over time.
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This glossary post was last updated: 16th April, 2020 | 0 Views.