How Does the “Time Decay” (Theta) Affect the Value of an Option?
Theta is one of the "Greeks" and represents the rate at which an option's price decreases over time due to the approaching expiration date. As time passes, the probability of the option finishing in-the-money decreases, causing its extrinsic value to erode.
Time decay is non-linear, accelerating significantly in the final weeks before expiration.
