What is theta (time decay)?
By Faizan Ahmad. Updated .
Theta is how much an option's price drops from one day passing, with the stock price and implied volatility unchanged. A theta of -0.20 means the option loses about $0.20 a share, or $20 a contract, per day. Only the time value part of an option's price decays, and it reaches zero at expiration, so option buyers pay theta every day and option sellers collect it.
What part of an option actually decays?
An option's price has two parts. Intrinsic value is what it would be worth if exercised now: for a call, how far the stock is above the strike. Time value is everything above that, the price of the chance that the stock moves further before expiry. The options disclosure document every US options trader receives puts it plainly: time value usually shrinks as expiration approaches, and the shrinking speeds up as time runs out. At expiration, an option is worth exactly its intrinsic value, nothing more.
So theta can only take what time value there is. A deep in-the-money option, which is mostly intrinsic value, decays slowly. An out-of-the-money option is nothing but time value, so all of it is on the clock. More on that split in ITM, ATM and OTM.
A real example: a META call that is all time value
On October 30, 2026 at 1:03 PM ET, 4,481 META February 19, 2027 $730 calls traded for $10.59M with Meta at $620.83. That is $23.63 a share ($10.59M ÷ 4,481 ÷ 100). The strike sat 17.6% above the stock, so the call had no intrinsic value: every cent of the $23.63 was time value, with 112 days to go.
Illustrative arithmetic: hold Meta at $620.83 and hold volatility at about 41%, the level that trade price implies, and let a standard pricing model run the clock:
| Days left | Call value | Theta per day | Value lost so far |
|---|---|---|---|
| 112 | $23.63 | -$0.24 | 0% |
| 84 | $16.82 | -$0.25 | 29% |
| 56 | $9.73 | -$0.26 | 59% |
| 28 | $2.91 | -$0.22 | 88% |
| 14 | $0.49 | -$0.11 | 98% |
| 7 | $0.03 | -$0.02 | Almost all |
This is the part most people miss. A far out-of-the-money option doesn't save its decay for the final week. It bleeds a steady $0.24 to $0.26 a day for months, and with a month still left it has already lost 88% of its value if the stock hasn't moved toward the strike. Meta doesn't have to fall for this call to lose; it only has to sit still. That's the real cost behind far out-of-the-money calls.
Why does time decay speed up near expiry?
For an at-the-money option, time value grows with the square root of the time left, not in a straight line. Run that backward and decay is slow at first and fast at the end. Rule-of-thumb arithmetic for an at-the-money option starting with 90 days, volatility unchanged:
| Days left | Time value left (vs day 90) |
|---|---|
| 90 | 100% |
| 60 | 82% |
| 30 | 58% |
| 14 | 39% |
| 7 | 28% |
| 1 | 11% |
The first 60 days take 42% of the value; the last 30 days take the other 58%, and the final week alone takes 28%. That's why theta per day is largest for at-the-money options in their last days, and why same-day options can lose most of their value in hours if the stock doesn't move.
The two examples together give the full picture. At the money, decay accelerates into expiry. Far out of the money, decay is steady and the option is close to worthless well before expiry.
Who pays theta and who collects it?
| Position | Theta | What each day does | The catch |
|---|---|---|---|
| Long call or put | Negative | Costs you money | You need the stock to move enough, soon enough |
| Short call or put | Positive | Pays you | You carry negative gamma, so sharp moves hurt |
| Debit spread | Smaller negative | Costs less per day | Profit is capped |
| Credit spread | Smaller positive | Pays less per day | Loss is capped, and so is income |
Theta isn't the only thing that shrinks an option's price while the stock sits still. A drop in implied volatility does it too, which is vega's job.
How to see it on Tradytics
In the options strategy builder, build a trade on the live chain and look at its P&L by price and date: hold the price where it is and move the date forward, and the drop you see is theta. On the live options flow page, every print shows its expiry with days to expiry, a fast way to see how much clock a big trade has left.
Common questions
Is theta the same every day?
No. For at-the-money options it grows as expiry approaches. For far out-of-the-money options it is fairly steady and then fades to zero as the option becomes worthless.
Do options lose value over the weekend?
Time passes on weekends, and most models count calendar days. Market makers know the weekend is coming, so much of that decay tends to show up in prices before Friday's close rather than as a surprise on Monday.
Why did my option lose value when the stock didn't move?
Theta took a day's worth of time value, and a fall in implied volatility may have taken more. Both hit buyers when the stock sits still.
How can I reduce time decay?
Buy more time (decay per day is smaller far from expiry), buy options deeper in the money (less time value to lose), or sell an option against the one you own in a spread.
Do calls and puts decay the same?
Both lose time value. At the same strike and expiry their theta differs a little because of interest rates and dividends.
Sources
- OCC and the US options exchanges, Characteristics and Risks of Standardized Options (June 2024): intrinsic value and time value, and how time value usually shrinks faster as expiration nears.
- Cboe rule filing SR-CBOE-2019-126 (SEC Form 19b-4): theta as value lost per day, and options being worth exactly intrinsic value at expiration.
- SPY options traded $332.69M in premium on 2026-11-02: $193.21M in calls and $139.47M in puts, a net bullish lean of $31.88M.
- Put/call ratio 0.72.
- Options price a move of about ±$6.07 by 2026-11-02.
- Max pain for 2026-11-02 is $765.0.
Updated 2026-11-02 16:03 UTC