What Is the Concept of “Time Decay” (Theta) in Option Pricing?
Time decay, or Theta, is the measure of how much an option's value decreases as the time to expiration passes, all other factors remaining constant. Since an option is a wasting asset, its value converges to its intrinsic value (or zero) at expiration.
Theta is always negative for long option positions. It is one of the "Greeks" used in risk management.
