How Does the Time Value of an Option Decay, and What Is the Relevant Greek?

The time value of an option, which is the amount of the premium exceeding its intrinsic value, decays as the option approaches its expiration date. This decay accelerates significantly in the final weeks of the option's life.

The Greek letter that measures this rate of decay is Theta. Theta is typically a negative value, representing the daily loss in an option's value due to the passage of time, all other factors remaining constant.