In
finance,
theta measures the rate of change of an
options price (or value) with respect to the passage of time.
It is interesting to note that theta is the only component of an options price that can not be
hedged against.
For example, a
trader can hedge her
portfolio against
delta and
gamma, since these represent the first and second
derivatives respectively of the function pricing the
underlying instrument.
There is no instrument, however, which can hedge a porfolio of options against the passage of time.