Well, in our previous write-up we’ve advocated AUDNZD credit call spread for both hedgers and speculators taking into account.

The strategy reads this way, short ITM calls and OTM long calls with 2w and 1m expiries respectively.

Where theta on shorts is the sensitivity of an option’s value to the passage of time.

It is usually expressed as the change in value per one day’s passage of time.

It can wipe a smile off the face of any determined trader once its insidious nature becomes fully felt. 

As you can observe from the above diagram that explains the various payoff graphs on corresponding shifts in strikes, option Greeks and NPV of short call position.

Please be noted that the theta at spot reference 1.0463 is 22.33, which means for every day NZD22.33 is likely to wipe off in the option's value even if underlying spot remains stagnant.

In the below nutshell, we’ve also demonstrated how theta reacts to the time decay and their effects on option premiums. Remember, we’ve assumed the scenario where underlying spot remains stagnant.

Theta is not a constant, it changes as the underlying market moves and time passes.

You can also observe the increase in theta when underlying spot drifts below the current 1.0463 levels in sensitivity table, thereby more reduction in option value.

Moreover, chances of exercising option rights are very minimal when the spot rate is declined.