Theta Decay
a.k.a. Time decay, Theta
The steady loss of an option's value as time passes and its expiry date gets closer.
In plain English
The steady loss of an option's value as time passes and its expiry date gets closer.
Theta decay is an option melting like an ice cube. Part of an option's price is "time value": the chance that something exciting could still happen before it expires. Every day that passes without that excitement, a little time value drips away. Theta measures how much.
The melt speeds up as expiry approaches. Option buyers fight theta every day; option sellers collect it. It is why buying cheap, short-dated options and hoping is usually a losing habit.
Keep this word for good
Your free Private Swap Lounge saves the terms you’ve learned and quizzes you on them. Portal under construction. Expected delivery date is December 01, 2026.