Skip to content

Theta of a long OTM put as the stock rises

Question

A stock is at S0=35S_0 = 35 and you have bought a put struck at 3333. If the stock price goes up, what happens to the theta of your position?

Reply 11 if it goes up, 00 if it is unchanged, or −1-1 if it goes down.

Short answer

11 (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.

Adapted from QuantQuestions.io; question and answer rewritten by SelfMadeQuant.com.

See the hint and the full worked solution in the question bank (free account).

Open the worked solution

Lessons behind this question

Start with a free lesson: Options is part of a free topic. Create a free account, no card needed, to read it in full with worked solutions.

Read it free