August 30, 2026
Time decay is the closest thing to a tailwind a seller gets. It's also the most misread number in options, because it never arrives without its opposite attached.
An option's price splits into intrinsic value and time value. Intrinsic value is what you'd get from exercising right now: for a put, strike minus stock price, floored at zero. Everything above that is time value, and it's payment for the possibility that things change before expiration.
At expiration that possibility is gone, so time value is zero and the option is worth exactly its intrinsic value or nothing at all. Everything between now and then is the journey from one to the other.
Out-of-the-money options are pure time value. That's why a $47 put on a $52 stock can go from $1.00 to nothing without the stock moving at all.
Theta quotes how much value the option loses per day, holding everything else constant. A theta of −0.04 means the contract sheds about $4 a day.
The "holding everything else constant" clause is doing enormous work. Theta is what happens on a day when the stock doesn't move, implied volatility doesn't change, and nothing is announced. Real days are rarely that day, and theta is routinely swamped by a single one-percent move in the underlying.
Decay isn't linear. Time value scales roughly with the square root of the time remaining, which means an option with 100 days left doesn't hold twice the time value of one with 50 — it holds about 1.4 times as much.
Between day 90 and day 60, an out-of-the-money option gives up a modest slice of its value. Between day 30 and expiration it gives up most of what's left, and the last week accounts for a disproportionate share of that.
This is the reasoning behind the 30-to-45-day window that shows up in most premium-selling writing. Further out, the premium is larger in absolute terms but decays slowly, so the capital is committed for a long time to earn it. Much closer in, the decay is fast but there's little left to collect and the position is fragile.
The accelerating decay curve gets presented as an argument for holding into expiration, and it's exactly backwards for most sellers.
The same closeness to expiration that makes time value evaporate makes the position's delta unstable. As covered in the delta piece, gamma peaks near the money and near expiry, so in the final week a small move in the stock can swing your exposure violently. You are collecting the fastest decay precisely when the underlying risk is least controllable.
That trade — more decay, more instability — isn't a mistake in the pricing. It's the pricing. Theta is not a yield the market forgot to remove; it's compensation for holding gamma risk, and the two are the same size by construction.
It's the reason many sellers close at 50% or so of maximum profit rather than running to expiration. The remaining premium is small and the remaining risk isn't.
Decay is calendar-based, not session-based. Three days pass between Friday's close and Monday's open, and the option prices that in.
In practice market makers pull some of it forward, so a Friday afternoon quote often already reflects part of the weekend, and Monday's open is less of a gift than the arithmetic suggests. The effect is real and smaller than people expect.
Only time value decays. A deep in-the-money option is mostly intrinsic, and intrinsic value doesn't erode — it tracks the stock. A short put that's gone $8 in the money isn't slowly healing as expiration approaches; it's a stock position with a small time-value remainder attached, and waiting doesn't help.
Which is worth knowing before deciding to hold a losing position for the decay. Once the option is meaningfully in the money, there is very little decay left to collect, and the reason to stay is a view on the stock rather than a view on time.