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Binary Options: Fixed Odds Financial Bets by Hamish Raw

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2. Theta & Time Decay

2.0 Introduction

Theta is a ratio that measures how much the bet price will change due to the passing of time.

Theta is probably the easiest ‘greek’ to conceptually grasp and is possibly the most easily forecast since the passage of time itself moves in a reasonably uniform manner.

Bets on many financial instruments are now always ‘in-running’, i.e. there is always a market open on which to trade. These days there is a 24-hour market in foreign exchange trading so any bet on the future level of the $/£ rate is always ‘in-running’ with the theta constantly impacting on the price of bets. On other markets which operate in discrete time periods, where the market is open for a limited period of five days a week, market- ...

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