Theta Decay in Options Explained
Theta decay in options explained: learn how time decay works, when it accelerates, and how traders manage theta risk.
Frequently asked questions
When does theta decay happen?
Theta decays every day, including weekends (though options don't trade). The decay is priced in gradually. Some traders see accelerated Friday decay as markets price in the weekend.
How do I profit from theta?
Sell options to collect theta. Covered calls, cash-secured puts, credit spreads, and iron condors all benefit from time decay. The key is having the underlying stay within your profitable range while time passes.
Why does theta accelerate near expiration?
Options have less time for big moves to happen, so time premium evaporates quickly. The uncertainty (and thus time value) drops rapidly as expiration approaches and the probable range of outcomes narrows.