Theta of a long OTM put as the stock rises
Question
A stock is at and you have bought a put struck at . If the stock price goes up, what happens to the theta of your position?
Reply if it goes up, if it is unchanged, or if it goes down.
Short answer
(theta increases). A long put has negative theta, largest in size near the money. The put is already out of the money, so a higher stock price moves it further away from the strike and shrinks the time decay; a negative number moving toward zero is an increase.
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Open the worked solutionLessons behind this question
- Greeks and Numerical Sensitivities
- Option Mechanics: Calls, Puts, Moneyness, Intrinsic Value, and Exchange vs. OTC Markets
- Option Trading Strategies: Spreads, Combinations, and Payoff Engineering
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