Explain the Concept of “Theta Decay” and Its Impact on an Option’s Premium

Theta decay is the rate at which an option's time value erodes as it approaches expiration, all else being equal. It is a negative value, meaning the option's premium decreases daily.

This decay accelerates significantly in the final weeks of the option's life. Buyers of options (long positions) are negatively affected by Theta, while sellers (short positions) benefit from the decay.