What is Time Decay (Theta) in Options? – Explained with Simple Examples

 Time Decay, also known as Theta, is one of the most important concepts in option trading. It affects the value of your options every single day — even if the market doesn’t move!


Let’s understand it in the easiest way possible.


🔹 What is Time Decay?

Time Decay means that as the option gets closer to its expiry date, the premium (price) of the option reduces — even if the market stays flat.


This happens because options are wasting assets. They lose value over time.


📉 Example:

You bought a Nifty 22,800 CE at ₹100 — with 7 days to expiry.

Let’s say Nifty stays flat at 22,800:


Days Left Option Premium

7 days ₹100

5 days ₹80

3 days ₹55

1 day ₹25


✅ Even without movement, the premium drops due to time decay!


🔍 What is Theta?

Theta is a Greek value that tells you how much premium will reduce daily.


Example: If Theta = -5 → Option will lose ₹5/day (if market stays flat)


🧠 Why It Matters:

If you're buying options, time decay works against you


If you're selling options, time decay works in your favor


📌 Time Decay is Faster Near Expiry

Days to Expiry Time Decay Speed

> 15 days Slow

10–5 days Medium

< 3 days ⚠️ Very Fast


That’s why many traders avoid holding options till last 1–2 days unless momentum is strong.


✅ Tips to Manage Time Decay:

If You're... Strategy

Option Buyer Trade intraday or momentum swings

Option Seller Use Theta in your favor (weekly expiry trades)

Neutral Avoid holding overnight near expiry


📌 Conclusion:

Time decay eats your premium daily — so never ignore it.

Learn to use Theta wisely depending on your trading style.


👉 For more options lessons, follow Finfo Traders and download our free Excel trade tracker in the Tools section.


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