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What is an option's theta, in plain words?

Theta represents, in theory, how much an option's premium may decay per day, as a dollar amount 1. The decay tends to be gradual at first and to accelerate as expiry approaches; at-the-money options have the most exposure to it, and options deep in or far out of the money very little 1. By the formula, a call you bought has a negative theta, and so does nearly every put you bought: time takes value from them 2.

A call with a $50 strike at 30% implied volatility (made-up numbers). Move the stock and the days left, and read the theta the formula gives.

Source: the StrikePath engine, pricing with the Black–Scholes formula 2 at 4.3% interest a year; a simulated example, not market prices. For learning; not advice.

Theta in numbers

With the stock at $50 and 30 days left, the $50 call costs $1.80 and its theta is −0.031 by the formula 2: about 3.1¢ a share a day, or about $3 a contract, if nothing else moves. With the stock at $45 it is −0.014, and at $55 −0.021 2: away from the strike there is less time value to lose. With 7 days left, at the strike, it is −0.062; with 90, −0.019 2.

A rate, not a fixed charge

Theta is the rate for one small step of time with everything else still; over a whole day the formula's own price is what counts, and near expiry the two can differ. There is no single industry-wide method for counting time decay, and different models show it differently 1: the figure your broker shows may not match this one.

What this shows, and what it doesn't

The formula's theta for one strike and one volatility, counting every calendar day, as this site's engine does. In a market the stock and implied volatility move too, and either can matter more than a day of theta. For the seller of the same option the sign flips: time works for them, by the same arithmetic.

Go further

Sources (2), each checked 20 October 2026
  1. The Options Industry Council, “Theta”. Read it (read 20 October 2026)
  2. Fischer Black and Myron Scholes, “The Pricing of Options and Corporate Liabilities”, Journal of Political Economy 81(3), 637–654, 1973. Read it (read 20 October 2026)

Now try it on a scenario of your own

Pick where a simulated stock might be, and by when: drag one dot and see, side by side, what buying shares, one option, or a pair of options (a call or put spread) would each do. Free, no sign-up.

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