Theta Decay (Time Decay)
The clock working against the buyer and for the seller, one day at a time.
Definition
Theta decay, or time decay, is the steady erosion of an option's time value as expiry approaches. It is driven by theta, the Greek that quantifies how much premium an option loses for each day that passes, all else being equal. Only the time value decays; the intrinsic value is unaffected.
Why it matters
Time decay is the core reason option buyers can be right on direction yet still lose money if the move is too slow. The same force is the structural edge for sellers, who collect premium that bleeds away over time. Crucially, decay is not linear, it accelerates in the final weeks, so timing and expiry choice matter as much as direction.
Example
An at-the-money option with no intrinsic value trades at 100 in premium and has a theta of about −4 per day. With the underlying unchanged, the premium drifts to roughly 96 the next day and keeps shedding value faster as expiry nears, until any remaining time value reaches zero at expiry.
See it live
Watch premiums erode strike by strike as expiry nears on TradePulse's live option chain.