Definition
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.
Theta measures how much premium an option sheds each day if nothing else changes. The decay is not linear — it speeds up dramatically in the final days before expiry, which is why an out-of-the-money weekly option can lose most of its value in the last sessions.
Indian option sellers on Nifty and Bank Nifty build entire strategies around harvesting theta on the weekly expiry, while buyers must overcome it with a fast move. Theta works for the seller and against the buyer every single day, making time the option writer's silent ally.
Related terms
- Premium DecayPremium decay is the steady erosion of an option's time value as it approaches expiry, driven by theta.
Plain-English explainer from The Dispatch Investors Encyclopedia. General information, not financial advice.