What is Theta?
How much an option price decays per day — the cost of holding optionality.
Definition
Theta (Θ) is the option's daily price decay, holding everything else constant. A theta of -0.18 means the option loses $0.18 per calendar day. Theta accelerates dramatically into expiry (the famous "theta wall") — at-the-money options can lose 30-50% of remaining premium in the final week.
Why it matters for trading
- Theta is the discipline of an options trade. Every day spent in a long-option position erodes value; the underlying must move enough to outpace decay.
- Theta-positive strategies (short straddles, calendars, iron condors) are essentially "renting out volatility" — collecting decay daily in exchange for taking tail risk on big moves.
- Time-of-week matters: weekend theta is paid Friday-to-Monday (3 days of decay) but compressed into the Friday → Monday gap. Long-option holders take a structural haircut over weekends.