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Trade Logic Unlocked

The Difference Between Extrinsic Value and Theta

Trade Logic Unlocked

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

It’s very easy to use Extrinsic Value and Theta synonymously, as they both relate to and describe the time decay associated with options. However, it’s important to recognize that they are not the same thing.

The Extrinsic Value is the second piece of the option’s price itself (alongside the Intrinsic Value), and Theta shows how quickly that Extrinsic Value will indeed decay over time.

Therefore, while these two are very similar in form and function, they each serve a unique purpose to us as premium sellers.

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