📉 Options & Cboe · Lesson 6 of 7 · 7 min
Theta — The Clock That Robs You
⏳ Every options contract quietly loses value every single day just because time is passing. It's called theta decay — the only corner of finance where doing absolutely nothing reliably costs you money. Your option is an ice cube, and the clock is room temperature.
💡 Key idea
Theta is daily time-decay: options lose value as expiration nears. A cost for buyers, income for sellers — and it speeds up near the end.
🧠 Why it matters
An option is partly a bet on TIME — the longer it has to come true, the more it's worth. THETA measures how much value an option loses each day as expiration approaches, all else equal. For buyers, theta is a constant headwind: even if the stock doesn't move, your option gets cheaper daily, and the decay ACCELERATES in the final weeks. For sellers, theta is income — they profit from that same melting. Time is either your tax or your paycheck.
🌍 In the real world
💡 Buy a call expecting a big move, the stock goes sideways for two weeks, and you're down money anyway — that's theta quietly eating your contract while you waited. Meanwhile the person who SOLD you that option is collecting the decay like clockwork.
📌 Takeaways
- Theta = how much value an option loses per day
- Decay accelerates as expiration approaches
- A cost to option buyers, income to option sellers
✅ Test yourself
What does theta measure?
- Price direction
- How much value an option loses each day from time passing
- Volatility
- Dividends
Answer: B · How much value an option loses each day from time passing
Theta is time decay — the daily value an option bleeds as expiration nears.
Theta decay is a cost for ___ and income for ___.
- sellers / buyers
- buyers / sellers
- no one / everyone
- the broker / you
Answer: B · buyers / sellers
Buyers lose value to decay daily; sellers collect it as the option melts.
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