TIME DECAY (THETA)
Plain English
Every day that passes, your option loses a little bit of value, like an ice cube melting. This is Theta. If you buy options, time works against you. If you sell options, time works in your favor.
Going deeper
Theta measures the rate at which an option loses value as time passes, all else being equal. It's expressed as a daily dollar amount. An option with a Theta of -0.05 loses $5 per contract per day. Theta accelerates as expiration approaches — the last 30 days see the fastest decay. ATM options have the highest Theta because they have the most extrinsic value to lose. Deep ITM and far OTM options have less Theta. This is why option sellers love time decay and option buyers need quick moves.
Examples
Theta Acceleration
A 60-day ATM call has a Theta of -0.03 ($3/day). The same call with 10 days left has a Theta of -0.12 ($12/day). Time decay isn't constant — it accelerates dramatically in the final weeks.
Seller's Advantage
You sell a put with 30 days to expiration and collect $200 premium. Every day, roughly $5-$10 of that premium evaporates even if the stock doesn't move. After 20 days, you might be able to buy it back for $60 and keep $140 profit.