What is theta in options?
How fast does an option lose its time value?
Theta describes the time value an option loses when everything else stays put. For options you have sold that decay broadly works in your favour, and for options you have bought it works against you. Theta is not a guaranteed daily income: price moves, volatility and the actual pricing structure can all swamp the effect.
What theta puts a number on
Theta states how much value an option loses in a day if price, volatility and rates all stay put. A theta of minus 0.05 is five cents per share on paper, so roughly five dollars per contract. Theta is negative for options you bought and positive for options you sold. Only time value decays; intrinsic value does not.
Theta is normally quoted per calendar day, not per trading day. A weekend costs three days of time value with no trading in between — visible only in Monday’s opening marks, and only if nothing else has changed in the meantime.
Why decay is not linear
At-the-money options decay faster and faster into expiration, because the time value that remains has less and less time left to turn into movement. Far out-of-the-money options decay more evenly, but from a much smaller starting amount. Choosing an expiration is therefore a decision about the pace of decay, not only about how much premium you collect.
It is also why a theta figure on its own cannot rank strategies. Two positions with identical theta can carry completely different gamma and vega profiles — and therefore completely different ways of handing back the decay they looked so safe collecting.
The common misreading
Theta is not a daily income that simply accumulates. It is a snapshot under the assumption that nothing else changes, and that assumption rarely holds. A rise in implied volatility can wipe out several days of decay in minutes, and a move against the position does so even faster.
Strategies where the term matters
- Cash-Secured Put — After a 30% drop, would the strike still be a price you actually want to pay?
- Covered Call — Are you willing to hand over the shares at the call strike - even if they keep running afterwards?
- Long Straddle — Does the move have to be bigger than the one the market has already priced in?
Related terms
Every term in one place: the options glossary.
This material is general information about option strategies, written for a general audience. It is not investment advice, not a recommendation, and not financial analysis. Options can lose their entire value, and uncovered positions can lose more than the amount committed. Anything said about tax is general in nature and is no substitute for professional tax advice. Last reviewed: 2026-08-06.