What is theta in options?
In one line: Theta is how much an option's price is expected to drop each day just from time passing, if nothing else changes.
A simple example
You buy a Call option priced at $3.00. One contract covers 100 shares, so it costs $300.
The option's theta is −0.05. That means, if the stock price and Implied volatility stay the same, the option loses about $0.05 a share each day.
Per contract: $0.05 × 100 = about $5 a day.
After 10 quiet days with no move, the option might be worth about $2.50, or $250. Nothing went wrong. Time just passed.
Why time costs money
An option is a bet that something happens before a deadline. The more time left, the more chance for a big move, so the more the option is worth.
Each day that passes removes some of that chance. Theta is the daily price of that lost time.
Decay speeds up
Theta isn't steady. It's usually small when expiry is months away and grows as the date gets close.
| Time to expiry | Typical daily decay |
|---|---|
| 90 days | Slow |
| 30 days | Faster |
| Last week | Fastest |
The exact numbers depend on the option, its Strike price and IV. The shape, slow then fast, is the general pattern.
Who it helps and hurts
- Option buyers have negative theta. Time works against them.
- Option sellers have positive theta. Time works for them, but they take on other risks, sometimes large ones.
More in options trading basics.
A common mistake
Buying very short-dated options because they're cheap. A cheap option with days left can lose value fast, even if the stock moves your way slowly. Being right "eventually" isn't enough.
Before buying an option, ask: how much does this need to move, and by when? Theta tells you the cost of waiting.
Questions
Why is theta negative?
For option buyers, theta is shown as a negative number because the option loses value as time passes.
Does theta decay on weekends?
The calendar keeps running, so time value does too. Many prices adjust for the weekend before Friday's close, so the drop often doesn't appear as a jump on Monday.
What are the "Greeks" in options?
Measures of how an option's price reacts to change: delta (price of the stock), theta (time), vega (implied volatility) and gamma (how delta changes).
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