The overall effect of a contract's time value wearing away as expiration nears. It accelerates non-linearly (a curve, not a straight line). Theta is the daily numeric measure of this decay.
What this decay is
Time Decay (Time Decay) is the melting of a contract's time value as days pass, until it reaches zero at expiration. It is built into the structure, not a scenario: the chance you pay for today narrows tomorrow because the time left has shrunk. Theta is its measured speed at any moment.
Its curve is not a line
Decay speeds up toward the end. An at-the-money contract loses time value slowly in its first month and fiercely in its last week (the Theta Cliff). Far OTM contracts decay differently, relatively earlier, because their fragile chance dies young.
Who pays it and who collects it
It is the silent tax on every buyer and the quiet income of every seller. Premium-collecting strategies (covered, cash-secured, condor) are all decay-harvesting machines. They earn from the passing of days itself, as long as nothing happens to overturn the table.
Hypothetical example
Two at-the-money contracts: a monthly at $3 and a weekly at $1.4. After a quiet week the monthly is worth about $2.55 (it lost 15%) and the weekly is dead. The same time cost one of them a part of its value and the other all of it.
Common mistake
Buying short-dated time to save money, then being surprised how fast it bleeds: the weekly's low price is exactly the price of its early death. Whoever needs time buys it, and economizing on it means economizing on your odds of survival.
Where to see it on the platform
The time-decay curve in the calculator plots it day by day for your specific contract, so you see the cliff before you stand on it.
