Theta Decay

Theta measures the daily erosion of an option's value due to the passage of time, holding all other factors constant. If an option has a theta of -$0.05, it loses $0.05 in value every day simply from time passing. This decay is the price option buyers pay for the right to participate in potential stock movement, and it is the income option sellers collect for taking on that obligation.

The most important characteristic of theta is that it accelerates as expiration approaches. An option with 45 days to expiration might lose about 0.9% of its value per day. At 30 days, that increases to around 1.2% per day. At 14 days, it jumps to roughly 1.8% per day. And in the final week, decay can reach 2.8% per day or more. This non-linear acceleration is why many option buyers prefer to enter positions at 30-45 days to expiration, where daily decay is manageable, and why many sellers focus on the final 30-45 days, where they capture the steepest portion of the decay curve.

Understanding theta is essential for strategy selection and timing. Buying options close to expiration means fighting an uphill battle against aggressive time decay — the stock needs to move significantly just to break even. Selling options near expiration captures rapid time decay but comes with gamma risk (increased sensitivity to price movement). Options Pilot's Timing pillar tracks theta decay rates across different expirations to help you choose the optimal DTE for your strategy.