Options | Derivatives
Theta (Options)
"Theta measures the loss in value of an option due solely to the passage of time, also called time decay."
In-Depth Definition
Theta, or time decay, quantifies the loss in extrinsic value of an option for each day that passes, all else being equal. It is expressed as a negative value for option buyers (time works against them) and positive for sellers (they benefit from time passing). A Theta of -0.05 means the option loses $0.05 per day. Time decay is not linear: it accelerates considerably in the last 30 days before expiration (the gamma/theta effect). This is why options selling strategies (covered calls, credit spreads) often target 30-45 day expirations: decay is fast enough without Gamma risk becoming unmanageable.
StarQuant Insight
StarQuant calculates and displays the total Theta of an options portfolio to allow traders to understand their daily time decay exposure and optimize their strategies accordingly.
Pro Tip
If you buy options, avoid very near expirations (less than 21 days): Theta is at its maximum and rapidly devours your premium. Prefer expirations of at least 45-60 days to give the market time to move in your favor.