How Does Theta Impact OTM Options Differently than ITM Options?

Theta decay is generally more damaging to OTM options because their entire value is extrinsic (time value), which Theta erodes. ITM options, while still subject to Theta decay on their extrinsic component, have an intrinsic value that is immune to time decay, providing a floor to their total value.

Therefore, OTM options lose a higher percentage of their total value to Theta over time.