Theta: Time Decay

Overview

Theta measures how much value an option loses each day purely from the passage of time. It works against buyers and in favour of sellers, and it speeds up as expiry approaches.

Key takeaways

• Theta is the daily cost of time decay, a negative number for buyers.
• Time decay accelerates in the final weeks before expiry.
• Sellers collect theta, buyers pay it.
• Out-of-the-money options lose their time value fastest near expiry.

For education only. Not investment advice.