Theta is one of the key "Option Greeks". Options are decaying assets; their extrinsic value continuously decreases over time, assuming stock price and implied volatility remain constant.
### Key Characteristics of Theta Decay - **Option Buyers (Longs)** lose value every day due to Theta decay. - **Option Sellers (Shorts)** profit from Theta decay as the option expires worthless. - **Acceleration Curve**: Theta decay is non-linear. It is relatively slow when an option has months left to expiry, but accelerates significantly during the last 30 to 45 days.
### Practical Trading Application Option sellers often structure strategies like **Iron Condors**, **Covered Calls**, and **Credit Spreads** to harvest Theta decay.
Yes, Theta decay is continuous and reflects calendar days, including weekends and holidays. Market makers price weekend decay into Friday close bid-ask spreads.
At-The-Money (ATM) options experience the highest absolute dollar rate of Theta decay near expiration because they contain the maximum amount of extrinsic value.
