How Does Time Decay (Theta) Affect the Value of an Option?

Time decay, or Theta, is one of the "Greeks" and represents the rate at which an option's value erodes as its expiration date approaches. Options are wasting assets; as time passes, the probability of the option expiring in-the-money decreases, causing its time value to decline.

This decay accelerates significantly in the final weeks before expiration. Time decay is a constant drag on the value of a long option position.