What it really means
It is like an ice cube slowly melting. If price does not help you, time keeps removing value.
Greeks
Theta
Theta measures how much option value decays with the passage of one day.
In one line Theta is the daily cost of time passing.
Greek
What time steals each day.
The closer expiry gets, the faster theta usually works, especially for near-the-money options.
Quick example
If theta is -0.18, the option may lose about $0.18 in value by tomorrow if everything else stays unchanged.
Why traders care
- Option buyers fight theta every day.
- Option sellers often use theta as the core source of edge.
- It explains why weekly options can decay brutally fast.
What beginners get wrong
- Buying short-dated options and waiting too long.
- Assuming a correct market view is enough without timing.
- Ignoring the relationship between theta and gamma near expiry.
Test Yourself
Quick Quiz
See how well you understand the term before moving on.
1 Theta of −0.15 means the option loses approximately how much value per day?
2 Who benefits from theta decay?
3 Near expiry, theta decay tends to: