Theta of a put option formula
Description of the Theta of a put option formula
Formula for the calculation of the theta of a put option. Theta measures the option value's sensitivity to the passage of time.
Formula
\[ \theta = -\frac{S\phi\left ( d1 \right )\sigma}{2\sqrt{t}}+rKe^{-rt}N\left ( -d2 \right ) \\ {\small where: \phi\left ( d1 \right ) = \frac{e^{-\frac{d1^{2}}{2}}}{\sqrt{2\pi}} } ; \] \[ {\small d1 = \frac{ln \left( \frac{S}{K} \right ) + \left(r+\frac{\sigma^{2}}{2}\right)t}{\sigma\sqrt{t}} ; } \] \[ {\small d2 = d1 - \sigma \sqrt{t}} \ \]
Symbols
\(K\ \)
Option strike price
\(N\ \)
Standard normal cumulative distribution function
\(r\ \)
\(σ\ \)
Volatility of the underlying
\(S\ \)
Price of the underlying
\(t\ \)
Time to option's expiry
Additional information related to this formula
Related definitions from the glossary of financial terms
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