How Does the Time until Expiration Affect the Extrinsic Value of an Option?

The extrinsic value of an option decreases as the time until expiration shortens, a phenomenon known as time decay or theta decay. This decay accelerates significantly in the final 30 to 45 days before expiration.

With less time remaining, there is less opportunity for the underlying asset's price to move favorably, reducing the option's speculative value.