Why Does Theta Decay Accelerate as an Option Approaches Expiration?
Theta decay accelerates because the value of the option's extrinsic (time) value becomes increasingly sensitive to the passage of time as expiration nears. With little time left, the probability of a significant price move is low, and the option's premium rapidly collapses to its intrinsic value.
This rapid collapse is reflected in the non-linear, accelerating rate of Theta decay.
Glossar
Selling Options near Expiration
Strategy ⎊ Selling options near expiration is a high-Theta trading strategy where a derivatives trader systematically sells contracts with a short time until maturity to capitalize on the rapid acceleration of time decay.
Theta Decay
Time Decay Quantification ⎊ Theta measures the rate at which an option's value decays due to the passage of time, representing the daily loss in extrinsic value for the option holder, assuming no change in the underlying price or volatility.