Theta

Theta measures how much value an option loses per day purely from the passage of time, holding everything else constant. It is the cost of being long options and the income of being short them.

Decay Is Not Linear

Extrinsic value decays in proportion to the square root of time remaining, not linearly. A 90-day option loses very little per day; the same option in its final two weeks loses value at a vertical rate. This asymmetry is why premium sellers concentrate on the 30-to-45-day window, where decay has begun to accelerate but gamma risk is still manageable.

Only Extrinsic Value Decays

Intrinsic value is immune to time. A deep in-the-money call worth $18 with $15 of intrinsic value only has $3 exposed to theta. This is exactly why LEAPS bought deep in the money make efficient stock substitutes: there is very little extrinsic value to lose.

Theta and Weekends

Theta is calculated on calendar days, not trading sessions. A long weekend with a holiday burns three or four days of extrinsic value with no trading in between. For premium sellers that is free income; for premium buyers it is a cost worth factoring into entry timing.

The Trade-Off With Gamma

Theta and gamma always point in opposite directions. Collecting theta means being short gamma — earning a little every day while exposed to a large move. Buying gamma means paying theta — bleeding daily in exchange for convexity. There is no structure that gives you both, and understanding that trade-off is most of what options strategy is about.