Derivatives & Risk

What is theta and how does time decay work in options?

Theta measures how much an option loses in value each day as expiration approaches, holding other factors constant. This erosion is called time decay, and it reflects the shrinking window for the option to move in the holder's favor. A theta of minus 5 means the option loses about five dollars of value per day. Decay accelerates as expiry nears, hitting at-the-money options hardest. Option buyers fight theta; sellers collect it. Time decay makes options a wasting asset, and they can expire worthless.

Crypto investments are subject to market risk and volatility. Past performance is not indicative of future returns. This is general information, not investment advice — consider your own circumstances or consult a qualified adviser before investing.