Theta is the daily cost of holding an option. It measures how much an option's value decreases each day from the passage of time alone — no stock movement required. Option buyers pay theta. Option sellers collect it.
Every option has a theta value shown as a negative number for buyers. A theta of −0.05 means the option loses $5 per contract per day, all else being equal. The stock price doesn't need to move. Implied volatility doesn't need to change. Simply by the calendar advancing, the option sheds that value.
For option sellers, theta is positive. Selling an option with a theta of 0.05 means collecting $5 per day as time passes. This is why selling strategies like covered calls, cash-secured puts, and iron condors are sometimes called "theta strategies" — the passage of time is working for you rather than against you.
This is the most important thing to understand about theta: it accelerates. An option with 60 days to expiration loses value slowly. The same option with 10 days left loses value rapidly. The final 30 days — especially the final week — is where theta does the most damage to buyers and delivers the most benefit to sellers.
If you buy a 30-day option and the stock goes sideways for 20 of those days, you've lost a significant portion of your premium even though the stock hasn't moved against you. You were right to be patient, but theta didn't care.
For buyers: longer expirations mean slower daily theta decay. A 90-day option loses less value per day than a 30-day option on the same stock. You pay more upfront but give yourself more time to be right. If your thesis takes two weeks to play out, a 90-day option is far more forgiving than a 14-day one.
For sellers: shorter expirations maximize theta collection. A 30-day option decays faster per day than a 90-day option, making it more efficient for income. Most covered call and cash-secured put sellers target 30–45 days to expiration for this reason — far enough out to collect meaningful premium, close enough that decay is accelerating in their favor.
You're long a call and the stock drifts sideways for two weeks. Even though the stock hasn't fallen, your option is worth less — 14 days of theta have been deducted from the time value you paid for. This is how traders can be right about direction and still lose money if the move comes too slowly.
The OpCalc P/L chart shows this directly. Compare the "Today" line to the "At Expiry" line at the current stock price. The gap between them at your strike is what theta costs you to hold the position from today to expiration.
You've sold a covered call and the stock hasn't moved much. Every day that passes, the call you sold loses value. If the stock stays below your strike until expiration, the call expires worthless and you keep the full premium. You were paid to wait, and patience was the entire strategy.
Income traders build entire approaches around this: sell options, collect theta daily, manage the occasional losing trade. The math works because most options expire worthless — sellers are structurally on the right side of time decay most of the time.