Why Is Theta Decay Generally Non-Linear, Accelerating Closer to Expiration?
Theta decay accelerates closer to expiration because the probability of the underlying price moving significantly to make an OTM option ITM, or an ITM option deeper ITM, diminishes rapidly. The time value, which is essentially the premium paid for that remaining uncertainty, collapses quickly in the final weeks.
This non-linear decay is a key feature of option pricing.
Glossar
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.
Accelerated Theta Decay
Timeframe ⎊ The rate at which an option's extrinsic value diminishes accelerates significantly as the expiration date approaches, a phenomenon critical in high-velocity crypto asset markets.