In Options Trading, How Does the Concept of “Time Decay” (Theta) Affect the Value of a Derivative?

Time decay, measured by the Greek letter Theta, represents the rate at which an option's value erodes as its expiration date approaches. Options are wasting assets; all else being equal, an option loses value every day because there is less time for the underlying asset price to move favorably.

This decay accelerates significantly in the final weeks before expiration.