In relation to stock options, define, and discuss the purpose of the following: Solution Theta: It is referred to as rate of decline(Time Decay) of value of options due to passage of time. If other things is held as constant, options value declines as time moves closer to maturity. For e.g., if the strike price of an option is $12,40 and theta is 33.70, then in theory the value of the option will drop $53.80 per day. Theta measures the risk of options since options is only exercisable for a fix period of time. Gamma: It is referred to as rate of change for delta with respect to the assets price. Gamma calculations are much accurate for small changes in price of assets. It is expressed as percentage and reflects the change in delta with respect to a price movement in assets price. .

1. In relation to stock options, define, and discuss the purpose of the following:
Solution
Theta: It is referred to as rate of decline(Time Decay) of value of options due to passage of time.
If other things is held as constant, options value declines as time moves closer to maturity.
For e.g., if the strike price of an option is $12,40 and theta is 33.70, then in theory the value of
the option will drop $53.80 per day.
Theta measures the risk of options since options is only exercisable for a fix period of time.
Gamma: It is referred to as rate of change for delta with respect to the assets price. Gamma
calculations are much accurate for small changes in price of assets. It is expressed as percentage
and reflects the change in delta with respect to a price movement in assets price.