How Does Theta Affect the Value of an Option as Expiration Approaches?

Theta measures the rate at which an option's price decays due to the passage of time, often called 'time decay.' Theta is typically a negative value for long option positions, meaning the option loses value each day, all else being equal. Theta decay accelerates significantly as the option approaches its expiration date, especially for at-the-money options.

Traders selling options (short positions) benefit from Theta decay.