Course · Act I: Read the Chain · Chapter 3
Option delta and theta
Delta, the option’s sensitivity to the stock, and theta, the daily cost of time. Why a small premium can behave like a large share position.
Key terms
- Delta
- How far the option price tends to move when the stock moves $1. Also a rough chance of expiring in the money.
- Theta
- How much premium the option tends to lose in a day if the stock does not move. Buyers pay it; sellers collect it.
- Leverage
- A premium that controls a much larger share position. Gains and losses are both magnified.
“Delta, Theta, Leverage” is part of the full course: 6 puzzles on option delta and theta. RocketCo is fictional, and none of this is a trade. Try this act’s free chapter, “Calls, Puts, and the Contract”, first.
“Delta, Theta, Leverage” is in Act I: Read the Chain. 6 puzzles, unlimited retries.
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