Theta

Options glossary · the value an option loses each day from time passing

Theta is time decay: the amount an option's price drops per day purely because expiry is one day closer, with the stock unchanged. It is quoted as a negative number for option buyers, who pay it, and it is positive for sellers, who collect it.

Theta is not a flat daily fee. It accelerates as expiry approaches, gently at first and then steeply in the final weeks, because the chance of a further move is shrinking fastest right at the end. An option can bleed to nothing while the stock does exactly nothing wrong.

Only extrinsic value decays; the intrinsic part of an in-the-money option does not.

Worked number. The default $105 call (stock $100, 45% IV, 30 days) has a theta of about -$0.087 per day, so a flat day costs roughly 9 cents a share, about $9 per contract, and that daily bill grows as expiry nears.

See it in the calculator → Load this scenario and change any input to watch theta update live.

FAQ

Does theta hit all at once or gradually?

Gradually, but at an increasing rate. Early on it is a slow drip of about 1% of the option's value per day; in the final week it can exceed 15% of the remaining value per day.

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