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How much value an option loses each day due to time passing.
Why It Matters
Theta is the daily cost of holding options. A theta of -0.05 means your option loses $5 per day (per contract) even if the stock doesn't move. This is why option buyers race against time while sellers collect theta as income - it's the foundation of strategies like covered calls.
Key Points
- Theta accelerates as expiration nears - options lose value fastest in the final weeks
- ATM options have the highest theta; deep ITM and OTM options decay slower
- Option sellers ('theta gang') profit from time decay working in their favor
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The Greeks Explained
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Common Questions
How much value an option loses each day due to time passing. Theta is the daily cost of holding options. A theta of -0.
Theta is the daily cost of holding options. A theta of -0.05 means your option loses $5 per day (per contract) even if the stock doesn't move. This is why option buyers race against time while sellers collect theta as income - it's the foundation of strategies like covered calls.
Theta accelerates as expiration nears - options lose value fastest in the final weeks
ATM options have the highest theta; deep ITM and OTM options decay slower
Option sellers ('theta gang') profit from time decay working in their favor