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how the gears turn
Pricing Options: Time
How the passage of time affects option prices
How We Measure Time Decay
A Theta Per Day Takes the Extrinsic Away
The rate at which time depletes extrinsic value from an option is measured by Theta (Θ), one of several metrics (known as used to measure risk. For example, if an option has a theta level of -1.25, then it’s extrinsic value is estimated to decay by $1.25 each day until expiration. The more risk an option carries, the greater its theta level will be.