# Theta and time decay

Theta is the estimated change in the price of an option as one day passes and everything else stays the same. Time decay is the loss of time value that theta measures.

Intermediate · Concept · published 29 September 2026 · last reviewed 29 September 2026
Canonical page: https://optionsbeacon.pro/learn/theta-time-decay
Learn Options > Pricing and volatility

## Key points

- Theta is stated in dollars per share per day. A theta of -0.03 means that the premium is expected to lose about $0.03 per share, $3 per contract, by tomorrow.
- Time decay works against the holder of an option and for its writer.
- Only time value decays. Intrinsic value does not depend on time.
- For options at the money time decay speeds up as expiration comes closer. It is not a straight line.

An option is a right with an end date, and part of its price pays for the time until that date. As the days
pass that part shrinks. [Theta](https://optionsbeacon.pro/learn/glossary.md#theta) is the measure of how fast.

## What the theta of an option measures

Theta is a theoretical estimate of the change of the premium, in dollars per share, when one day passes and
every other pricing factor stays the same.

A call with a premium of $1.80 and a theta of -0.03 is expected to cost about $1.77 tomorrow if nothing else
changes. One contract covers 100 shares, so the contract loses about $3 a day.

A bought option has a negative theta and a written option a positive one. The writer of an option gains what
its holder loses to time.

## Why only time value decays

A premium is [intrinsic value](https://optionsbeacon.pro/learn/glossary.md#intrinsic-value) plus
[time value](https://optionsbeacon.pro/learn/glossary.md#time-value). Intrinsic value depends on the stock price and the strike price, and
the calendar does not change it. Time value is what the market pays for the time left, and at expiration none
is left.

[Time decay](https://optionsbeacon.pro/learn/glossary.md#time-decay) is this loss of time value. An option at the money, whose premium is
all time value, has the most to lose. An option deep in the money has a large premium and little time value, and
it decays slowly.

## How time decay speeds up before expiration

The table follows a put with a strike price of $50 on a stock that stays at $50, in the Black-Scholes model with
a volatility of 30%, an interest rate of 4% and no dividend.

| Days to expiration | Premium | Theta per day | Decay per contract per day |
|---:|---:|---:|---:|
| 90 | $2.72 | -0.014 | $1.36 |
| 60 | $2.26 | -0.017 | $1.73 |
| 30 | $1.63 | -0.026 | $2.58 |
| 14 | $1.13 | -0.039 | $3.90 |
| 7 | $0.81 | -0.056 | $5.64 |
| 3 | $0.53 | -0.088 | $8.76 |

The premium falls by $1.09 in the 60 days from day 90 to day 30 and by $1.63 in the last 30 days. Time decay is
not linear. It is gradual at first and speeds up as expiration comes closer.

This holds for options at the money. An option far out of the money has lost most of its time value well before
the last week. In the same model a 45 put on the $50 stock is worth $0.20 with 30 days left and $0.04 with 14.

## Example of time decay for a holder and for a writer

> **Example**
>
> XYZ trades at $50. A 50 put with 30 days left is traded at $1.63 per share, $163 per contract. Fourteen days
> later XYZ still stands at $50 and the implied volatility is unchanged. The model values the put at $1.21 with 16
> days left. The holder has lost ($1.63 - $1.21) × 100 = $42 without any move of the stock, and the writer has
> gained $42. If XYZ stands at $50 on the expiration date, the put expires worthless, and the whole $163 has moved
> from the holder to the writer.
>
> *Hypothetical example for illustration only. One contract covers 100 shares; commissions, fees, dividends and taxes are ignored unless stated.*

## What else moves the premium while time passes

Theta assumes that nothing else changes, and something always does. A move of $1 in the stock changes the
premium of an option at the money by about $0.50, which is more than two weeks of decay in the table. A change
in implied volatility moves the premium as well.

Time decay is for this reason the one part of the result that is certain in direction, and often the smallest
part. A writer who collects theta has been paid to carry the risk of those other moves.

## What can go wrong with time decay

A holder can be right about the direction of the stock and lose money, because the move took longer than the
option had. Each day without the move costs the holder the theta of that day, and the cost per day rises as
expiration comes closer.

A writer can collect decay for weeks and lose more than all of it in a day. In the model of the table, the put
written at $1.63 with the stock at $50 is worth $3.32 a week later if the stock has fallen to $47, twice what
was received. The decay received is small and steady, and the loss arrives at once.

Theta is an estimate of a model. It is computed for one day and changes every day, with the price of the stock
and with implied volatility. The industry has no single method for it, so two pricing models can show two
values of theta for the same option.

## Questions and answers

### Do options lose value over the weekend?

Pricing models count calendar days, weekends included, so an option tends to lose seven days of time value over the five trading days of a week. The market does not wait for Monday. Premiums on the Friday before a weekend often reflect the decay of the days when the market is closed.

## Terms used on this page

- **Theta**: The estimated change in the price of an option as one day passes and everything else stays the same. A bought option has a negative theta and a written option a positive one.
- **Time decay**: The loss of an option's time value as its expiration comes closer. It is measured by theta, and for options at the money it speeds up in the last weeks.
- **Time value**: The part of an option's premium above its intrinsic value. It pays for the time left and for the movement expected until expiration, and it is zero at expiration.
- **Intrinsic value**: The amount by which an option is in the money, per share. It is the stock price less the strike price for a call and the strike price less the stock price for a put, and never less than zero.
- **Greeks**: The measures of how the theoretical price of an option changes when one of its inputs changes. They are delta, gamma, theta, vega and rho, and each is an estimate of a pricing model.

## Sources

1. [Theta](https://www.optionseducation.org/advancedconcepts/theta), The Options Industry Council (read 29 September 2026).
2. [Understanding Options Greeks](https://www.optionseducation.org/advancedconcepts/understanding-options-greeks), The Options Industry Council (read 29 September 2026).
3. [Leverage & Risk](https://www.optionseducation.org/optionsoverview/leverage-risk), The Options Industry Council (read 29 September 2026).
4. [April Office Hours FAQs: Options Strategy, Time Decay, and Market Mechanics](https://www.optionseducation.org/news/april-office-hours-faqs-options-strategy-time-decay-and-market-mechanics), The Options Industry Council (read 29 September 2026). Article of April 2026.
5. [June Office Hours FAQs: IV Statistics, Position Management, and the Wheel Strategy](https://www.optionseducation.org/news/june-office-hours-faqs-iv-statistics-position-management-and-the-wheel-strategy), The Options Industry Council (read 29 September 2026). Article of June 2026.
6. [The Pricing of Options and Corporate Liabilities](https://www.journals.uchicago.edu/doi/10.1086/260062), Fischer Black and Myron Scholes, Journal of Political Economy 81 (3), 1973 (read 29 September 2026).

## Related topics

- [Delta](https://optionsbeacon.pro/learn/delta.md)
- [Implied volatility](https://optionsbeacon.pro/learn/implied-volatility.md)
- [Cash-secured put](https://optionsbeacon.pro/learn/cash-secured-put.md)
- [Covered call](https://optionsbeacon.pro/learn/covered-call.md)
- [Exercise, assignment and expiration day](https://optionsbeacon.pro/learn/exercise-assignment-expiration.md)

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