How Does an Option’s “Time Decay” (Theta) Affect Its Premium?

Theta is one of the option Greeks and measures the rate at which an option's premium decreases over time due to the passage of days. As an option approaches its expiration date, its time value diminishes, causing its premium to drop.

Theta is always negative for long option positions (buyers) and positive for short option positions (sellers). This decay accelerates significantly in the final weeks before expiration.