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.
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.
- 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.
Real Decay Data — coming with Premium tier
Upgrade removes this boxThis 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.