Theta Decay Calculator

See how an option's time value erodes day by day as expiration approaches — and why the last 30 days accelerate fastest.

Time Decay Curve

What Is Theta Decay?

Theta (Θ) measures how much an option loses in value per calendar day, assuming the stock price and implied volatility stay flat. It's always negative for option buyers — time is always working against you when you're long options.

The critical insight is that theta decay is not linear. It accelerates as expiration approaches, particularly in the final 30 days. An at-the-money option loses value much faster in its last week than in its first week of life.

Why decay accelerates near expiration Option value = Intrinsic Value + Time Value
Time value = f(σ, √T) — it scales with the square root of time remaining.
Cutting DTE from 60→30 removes less time value than cutting 30→0.

The "rule of 16": An option with 30 DTE loses roughly twice as much per day as the same option with 60 DTE — not because theta doubled, but because time value decays as √T, not T.

Theta for Buyers vs. Sellers

  • Long options (buyers): Theta is your cost. Every day that passes without a stock move erodes your position. You need the stock to move fast enough to overcome decay.
  • Short options (sellers): Theta is your income. Selling options — covered calls, cash-secured puts, iron condors — collects theta as premium. Time working for you.
  • The tradeoff: Short theta positions have negative gamma. You collect decay but risk being hurt by fast moves.

Which Options Decay Fastest?

  • At-the-money (ATM) options have the highest absolute theta — they carry the most time value.
  • Deep in-the-money options have low theta — most of their value is intrinsic, not time value.
  • Far out-of-the-money options have low absolute theta but high relative decay — a $0.10 option losing $0.03/day is 30% per day.
Practical example: 60-day ATM call on $100 stock, 30% IV
  • Day 60 → Day 59: loses ~$0.035/day
  • Day 30 → Day 29: loses ~$0.050/day
  • Day 7 → Day 6: loses ~$0.075/day
  • Day 1 → Expiry: loses nearly all remaining time value

Strategies That Exploit Theta Decay

  • Covered call: Sell an OTM call against stock you own. Collect weekly/monthly theta while capping upside.
  • Cash-secured put: Sell a put at a strike where you'd be happy to own the stock. Collect premium as time passes.
  • Iron condor: Sell an OTM call spread and put spread simultaneously. Profit if the stock stays in a range through expiration.
  • Calendar spread: Buy a longer-dated option, sell a shorter-dated one at the same strike. Short-term theta decay funds the longer-term position.
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Real Decay Data — coming with Premium tier

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This chart shows how Black-Scholes says theta should decay. The real market doesn't always agree — skew, term structure, and supply/demand shift the actual decay curve. Premium overlays what the market is actually pricing.

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Actual Market Theta
Compare theoretical decay to real bid/ask mid prices day over day — see where theory breaks
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IV Skew Impact
Volatility skew and term structure shift your effective decay rate — see the true curve
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Historical Decay Patterns
How theta behaved on similar setups historically — including around earnings and events
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Theta vs. Gamma Trade-off
Real-time position sizing for long/short theta against your gamma exposure

What is theta decay in options trading?

Theta decay — also called time decay — is the reduction in an option's value as its expiration date approaches. Every option has a time value component built into its price. As each day passes, that time value erodes, all else being equal. Theta is the Greek that measures exactly how much value an option loses per day due to this passage of time.

Theta is typically expressed as a negative number for option buyers. A theta of -0.05 means the option loses approximately $5 per contract per day from time decay alone (assuming no change in the underlying price or implied volatility). Option sellers benefit from theta — they collect premium that decays in their favor as expiration approaches.

Theta decay is not linear. It accelerates significantly in the final 30 days before expiration, and especially in the last week. This is why options strategies like covered calls and cash-secured puts are often more effective when sold with 30–45 days to expiration — the seller captures the steepest portion of the decay curve.

How to use the theta decay calculator

Enter the stock price, strike price, days to expiration, implied volatility, and risk-free rate. The calculator uses the Black-Scholes model to compute the option price and theta at each point in time from today through expiration, then plots the decay curve so you can see visually how quickly value erodes.

Frequently asked questions

Does theta decay happen on weekends?

Technically yes — options lose time value over weekends even though markets are closed. However, the market prices in weekend decay throughout the week, so the visible drop typically appears on Monday's open rather than showing up as a daily Friday-to-Monday move.

Which options strategies benefit most from theta decay?

Short premium strategies benefit from theta: covered calls, cash-secured puts, credit spreads, iron condors, and calendar spreads (short leg). Buyers of long calls or puts are hurt by theta and need the stock to move enough to overcome the daily decay.

What is the relationship between theta and vega?

Theta and vega are often inversely related in practical terms. Options with high time value (and therefore high theta) also tend to have high vega — meaning they are more sensitive to changes in implied volatility. Selling premium captures theta but also takes on vega risk if IV expands unexpectedly.