Graham admits the 23-year-old holds all the aces when it comes to contract talks.
He told talkSPORT: "Theo is in a really strong position. He's had a great couple of months, but he's never really been a regular in the team. So I can understand Arsenal's point of view and them asking 'do we give him £100,000 a week when he's not even a regular starter'?
"But if he was on the open market he'd cost around £15million, so he can negotiate on that basis and get double the money Arsenal are offering him.
"Everybody knows he's got a great affection for the club and Arsenal have got to come up with a package to keep him - not just his wages but a loyalty bonus at the end of every season that builds up to more than £75,000 a week.
"But he has to turn it on week in, week out for the sort of money he wants."