How much a contract loses each day from the passing of time. It speeds up as expiration nears.
How to read the number
Theta measures how much of its time value a contract's price loses in one day, all else equal. A theta of −0.08 means the contract loses about 8 cents every day. The number is always negative for an option buyer, because time works against them, and effectively positive for the seller.
Why this number matters
Every plan to buy an option is a race against time: the expected move has to happen before theta eats the time value. Option sellers live on that same theta. They collect the Premium and hope nothing happens. That is why selling options is described as earning income from time, and buying them as buying time.
Acceleration near expiration
Theta is not a straight line. Decay speeds up in the final weeks and peaks in the last days of at-the-money contracts, known as the Theta Cliff (Theta Cliff). A contract with two months left loses time value fairly slowly, while the last week eats most of it.
Hypothetical example
A contract priced at $2.00 with a theta of −0.05: after five trading days with no move in the stock and no change in volatility, its price is about $1.75. The buyer did not get the direction wrong. They lost to time alone.
Common mistake
Comparing the theta of two contracts without looking at their prices. A theta of −0.05 on a contract priced at $0.50 eats 10% of its value a day, while the same theta on a contract priced at $5 eats only 1%. The percentage says more than the raw number.
Where to see it on the platform
The options calculator shows theta for each contract, and its time-decay curve plots the contract's value day by day to expiration, so the cliff shows up plainly.
