Theta

Theta is one of the option Greeks, and it measures how much an option's price is expected to decline each day purely from the passage of time, holding the stock price and other factors constant. It quantifies time decay, the steady erosion of an option's time value as it gets closer to expiration.

Theta is almost always negative for an option holder, meaning a long option position loses a little bit of value every single day just from time passing, even if the underlying stock does not move at all. This decay is not constant over the life of an option, it accelerates as expiration gets closer, so an option with a few days left typically loses value much faster per day than one with several months remaining. This is why option buyers need the stock to move in their favor within a reasonable timeframe, since time itself is working against the position the whole time it is held.

For an option seller, theta works in the opposite direction, a short option position benefits from time decay, gaining value each day the stock fails to make the expected move, which is the basic appeal of strategies like covered calls and cash-secured puts that are built around collecting premium as options lose time value. Traders managing option positions watch theta closely alongside delta and vega, since it represents a cost that is running against a long option position every day regardless of what the stock actually does.