Definition · updated 2026-10-21
Theta
Theta is the amount an option loses per day from the passage of time alone, with everything else unchanged. A −0.05 theta costs a long holder $5 per contract per day. Decay accelerates into expiration, which is why premium sellers favour 30–45 days out and 0DTE buyers face the steepest cost of all.
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Who pays and who collects
Long options pay theta; short options collect it. Spreads net the two legs, so a vertical's theta is small and an iron condor's is the sum of two short spreads. Theta is the income trader's whole business and the directional trader's rent.
Theta and the expected move
Time decay only earns you money if the underlying stays inside the range the market priced. Compare theta collected against the expected move: selling premium outside the move is being paid for the market's own volatility estimate.
Frequently asked questions
- Does theta decay over the weekend?
- Yes. Expiration is a calendar date, so Friday's close already prices most of the weekend decay, and the rest lands at Monday's open.
- Why is theta highest at the money?
- At the money the option is all time value, so there is the most to lose; deep in or out of the money the time value is small to begin with.