Why Is the Time Decay (Theta) Generally Highest for OTM Options?
Theta is generally highest for at-the-money options, not OTM. However, OTM options lose their entire value to time decay if they expire worthless.
The rate of decay is highest for ATM options because they hold the most extrinsic value, which is the value that decays over time. Deep OTM options have a lower absolute Theta because their total value is already low.
