What Is the Concept of “Time Decay” (Theta) in Options Trading?

Time decay, or Theta, is the measure of how much an option's price decreases as the expiration date approaches, assuming all other factors remain constant. Since an option's value is partly derived from the time left to exercise, this value erodes over time.

Theta is typically a negative number, meaning time works against the option buyer and in favor of the option seller.