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From Theory To Practice

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Extrinsic Value & Theta

From Theory To Practice

Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

If we stop and think about our entire operation as tastytraders, we realize that it largely depends on two pieces: extrinsic value and theta. Today, we take a closer look at the how both of these behave as we move from OTM options to ATM options. Not surprisingly, they both increase, which makes sense because we are taking on more risk. However, as we learn today when Frank joins us in the studio, the relative rates of increase illustrate another prime example of concavity.

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