What does "Theta" measure in an options context?

Theta is a measure used in the options trading context to quantify the rate at which an option's value declines as the expiration date approaches. Specifically, it reflects how much the price of an option is expected to decrease over time, all else being equal. As options have a finite lifespan, time decay is a critical factor for traders to consider when assessing an option's potential profitability.

When a trader holds an option, its time value diminishes as it approaches expiration, which means that Theta will typically have a negative value for long options. This indicates that for each passing day, the option's price will decrease, assuming that the underlying asset's price remains the same. Hence, the correct answer highlights the important role of time in the pricing of options and is vital for those involved in options trading or risk management.

The other measures mentioned—changes with respect to the option's underlying price, volatility, or interest rates—are associated with Delta, Vega, and Rho, respectively. Each of these Greeks provides insight into different sensitivities and aspects of option pricing.