Theta

How much value an option loses each day from time decay; it works against buyers and for sellers.

Theta measures how much value an option loses each day purely from the passage of time, holding everything else constant. It's usually written as a negative number: a theta of -0.05 means the option should shed about $5 per contract per day if nothing else moves. Time decay isn't linear either; it speeds up as expiration approaches, so an option can look calm for weeks and then bleed value quickly in the final stretch.

In practice, theta is the reason option sellers get paid to wait. If you sell a covered call or a cash-secured put, positive theta works in your favour every day the underlying sits still. Buyers face the opposite: even when you're right about direction, slow-moving price action lets theta quietly eat your premium. Say you buy a call with 10 days left and the stock barely budges; you can end the week down simply because time ran out on you.

The common mistake is treating theta as free money. Selling short-dated options collects the fastest decay, but it also carries the sharpest gamma risk, so a single fast move can wipe out weeks of accumulated theta in an afternoon. Theta rewards patience and stillness, and it punishes you exactly when the market stops cooperating.

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Educational use only. Quotes are delayed ~15 minutes and nothing here is financial advice. Options trading involves substantial risk of loss.