Understanding time decay (theta)

Theta measures how much an option loses in value each calendar day, all else equal. A theta of -0.05 means the option decays by roughly $5 per contract per day.

Time decay accelerates as expiration approaches — options lose value faster in the final 30 days than they did in the prior 60. This benefits sellers and hurts buyers of options.

Long options strategies (buying calls or puts) fight theta every day. Short options strategies (selling covered calls, cash-secured puts) collect theta as income — but carry their own risks.