Definition
Theta Burn (Expiry Day)
Theta burn is the extreme, rapid loss of option time value on expiry day, when remaining premium collapses toward zero.
On expiry day, an option has only hours of life left, so its entire remaining time value evaporates almost in real time — the theta burn. Out-of-the-money options can go from a few rupees to nearly zero within the session, while only intrinsic value survives to settlement.
Indian expiry-day traders on Nifty and Bank Nifty build strategies specifically around this burn — selling far out-of-the-money options to capture the last of the decay — but the same day carries huge gamma risk, so a single sharp move can overwhelm the theta gains.
Related terms
- GammaGamma measures how fast an option's delta changes as the underlying moves — the rate of change of delta.
- Premium DecayPremium decay is the steady erosion of an option's time value as it approaches expiry, driven by theta.
- Theta Decay (Time Decay)Theta decay is the daily loss in an option's value purely due to the passage of time, accelerating as expiry nears.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.