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Let's say you have bought a July Nifty CE or PE in June at Rs. 250 premium. Can you explain how its premium will change over time if nifty increases/decreases towards your strike price?

Basically I want to know the effect of theta parameter in Options.

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Google for an option pricing formula. Enter the option's pricing variables into it, varying only the time remaining until expiration. That will demonstrate the effect of theta on premium.

enter image description here

Varying the passage of time and price changing is more complex because it involves two variables.

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  • Can you post a screenshot or example demonstrating effect of theta on premium? Even any useful links demonstrating same would be helpful.
    – Selvam
    Jun 27 at 16:45
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Can you explain how its premium will change over time if nifty increases/decreases towards your strike price?

Basically I want to know the effect of theta parameter in Options.

Delta is the metric describing option price fluctuations as a function of moves in the underlying. Theta is a function of time. It's important to not overlap the Greeks and their effects; some are independent of one another.

For ATM options near expiration, theta decay is particularly pronounced. Theta decay is not linear, but rather the rate of decay begins slowly and then drastically increases over time.

However, if an option is deeply ITM, the price of the option "looks" closer to "linear", due to the majority of its value being intrinsic. But theta's magnitude is still varying across time.

OTM options experience a deceleration in time decay. They are nearly worthless already near expiration.

enter image description here

Source: CSFR

And here with the magnitude of slope shown increasing:

enter image description here

Source: Options Industry Council (OIC)

For more information, TastyTrade (I'm unassociated) made an informative video about the topic:

https://www.youtube.com/watch?v=9a91Jj6wybY&ab_channel=tastytrade

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