Explain the Concept of “Time Decay” (Theta) in Options Trading

Time decay, or Theta, is the measure of the rate at which an option's value erodes as its expiration date approaches. Options are wasting assets, and Theta is always a negative value for long option positions.

As time passes, the probability of the option expiring in-the-money decreases, causing the extrinsic value to decline. This is a crucial factor for options traders to manage.