Option Greeks

Theta Decay (Time Decay)

Q: Why is time decay not linear?

Because an option's time value is proportional to the square root of the time left, not to the time itself. Going from 8 days to 4 removes about 29% of the time value; going from 2 days to 1 removes another 29% of what is left, and from 1 day to zero removes all of it. The rupee loss per day therefore rises as expiry approaches, for at-the-money options.

Q: Does theta decay over the weekend?

Three calendar days pass between Friday's close and Monday's open, and the model prices them. In practice market makers lower implied volatility into Friday afternoon so that part of the weekend decay is taken before the close, and Monday's open reflects the rest. The buyer who holds a near-dated option over a weekend pays for days on which nothing can happen.

Q: Which day of a Nifty weekly decays the most?

The expiry day itself, Tuesday, for at-the-money options: whatever time value remains at the open goes to zero by the close. Monday is next. Wednesday and Thursday, the first two days of the new weekly, decay least in rupees. Out-of-the-money options decay most in the middle of the week and have little left by Monday.

Q: How do option writers use the decay curve?

By writing where the curve is steep enough to pay but not so steep that gamma risk dominates: typically a few days to a week before expiry for index options, and closing before the final session. The curve also decides rolling: a writer rolls a position to the next expiry when the remaining decay in the current one is small relative to the risk of holding it.

Time value does not leak out of an option evenly. It trickles for most of the contract's life and floods out at the end. Here is the shape of that curve, mapped onto a Nifty week.

In short: theta decay, or time decay, is the fall in an option's time value as the days to expiry run down, with the underlying and volatility unchanged. The decay follows a square-root curve: slow when expiry is far, accelerating in the final days, and total on the expiry day. It is paid by option buyers and collected by writers. On NSE, Nifty's weekly Tuesday expiry compresses the whole curve into seven days.

The intuition

An option's time value is a price for the chance of a useful move before expiry. The size of a likely move scales with the square root of time: a two-week window allows a move about 1.4 times as large as a one-week window, not twice as large. So the time value of a 14-day option is only about 1.4 times that of a 7-day option, and losing the first week costs far less than losing the second. Each day removes a larger share of what remains, until the last day removes the lot.

The curve has a different shape for strikes away from the money. An out-of-the-money option's value depends on a move that becomes less plausible as time runs out; its decay peaks earlier and then fades, because by the final days there is little left to lose. The steep final-day collapse belongs to the at-the-money strike.

Formula

Time value remaining ≈ time value at the start × √(days left ÷ days at the start), for an at-the-money option with volatility unchanged

Theta, the per-day rate, is the slope of that curve and grows as days left shrink. Chains quote theta per calendar day.

Worked example: one Nifty weekly, day by day (illustrative numbers)

Suppose NIFTY is at 24,000 and stays there all week, implied volatility is 14%, and a trader buys the 24,000 call on Wednesday morning, seven days before the Tuesday expiry, at the model value of ₹201 (₹13,065 per 65-unit lot).

Day	Days to expiry	ATM call value	Lost that day	Per lot
Wednesday	7	₹201	—	—
Thursday	6	₹186	₹15	₹975
Friday	5	₹168	₹18	₹1,170
Monday (after the weekend)	2	₹104	₹64 over 3 days	₹4,160
Tuesday open	1	₹72	₹32	₹2,080
Tuesday close	0	₹0	₹72	₹4,680

The first two sessions cost ₹33 of the ₹201. The weekend and Monday cost ₹64. Tuesday alone costs ₹72, more than a third of the original premium, in a single session during which the index did not move. A buyer who needed Nifty to rise had the same odds on Wednesday as on Tuesday morning, but paid ₹129 of decay waiting for it. The writer collected exactly that.

The decay of an at-the-money Nifty weekly call with the index unchanged. Half the premium is gone by Monday; the rest goes on Tuesday.

Why it matters to an options trader

It sets the buyer's clock. A directional view expressed through an at-the-money weekly must be right within the first few sessions or the decay eats the edge.
It is the writer's calendar. Writers position where the curve is steepest relative to the risk: late in the week for income, but out before the final session, where gamma overwhelms the remaining theta.
It decides which expiry to trade. A longer expiry has lower theta per day and more time for the view to work; a shorter one has more leverage and a faster clock. The curve makes the trade-off explicit.
It explains spread behaviour. Calendar spreads sell the steep part of one curve and buy the flat part of another; their profit is the difference in decay rates.

Common mistakes

Dividing the premium by the days and calling it the daily cost. Decay is back-loaded; the average understates the final days several times over.
Buying on Friday for Monday. The weekend's decay is priced whether or not anything happens; the example shows ₹64 lost between Friday's close and Monday with the index flat.
Assuming out-of-the-money options follow the same curve. They decay earlier and fade; by the last day they are worth almost nothing regardless.
Forgetting that volatility can overturn the curve. A rise in implied volatility adds time value even as the calendar removes it; around events the two fight.

Indian-market specifics

Nifty weeklies expire every Tuesday, so the decay curve above repeats every week; a new weekly starts each Wednesday at the flat end of the curve.
Bank Nifty and FinNifty options are monthly only (last Tuesday), so their curve is spread over four or five weeks, with the steep section in the final week.
Indian market holidays that fall on a Tuesday move expiry to Monday, shortening the curve and shifting the steep section a day earlier; check the NSE calendar each week.
Lot sizes after the January 2026 revision (Nifty 65, Bank Nifty 30, FinNifty 60, Sensex 20) convert decay per unit into rupees per lot.

FAQ

Why is time decay not linear?

Time value scales with the square root of time, so each day removes a larger share of what remains.

Does theta decay over the weekend?

Yes; three calendar days are priced, partly taken before Friday's close and the rest on Monday's open.

Which day of a Nifty weekly decays the most?

Tuesday, the expiry day, for at-the-money options; Monday is next.

How do option writers use the decay curve?

They write into the steep section and exit before the last session, and roll when the remaining decay no longer pays for the risk.

Theta for every strike, every expiry

The options calculator shows the per-day theta and the value curve for any strike and days to expiry; the option-chain pages show theta per strike from the latest close. In the app, the Positions page totals the net theta of the positions you record.

Options calculators Nifty option chain

Related terms

Theta, the per-day rate
Time Value, what decays
Expiry, where the curve ends
Gamma, the risk that grows as decay accelerates