Options Glossary
Theta measures how much value an option loses per day purely from the passage of time, assuming the stock price and volatility don't change. It's the reason options are sometimes described as a "wasting asset" — every day that passes without a favorable move works against a long option holder.
Theta is usually expressed as a negative dollar amount for long option positions. A theta of -0.05 means the option is expected to lose about $0.05 in value per share, or $5 per contract, over the next day, all else being equal.
Time decay doesn't happen at a steady rate across the life of an option. It accelerates as expiration approaches, especially for at-the-money options, which is why the final weeks before expiration are often the most expensive time to hold a long option that hasn't moved in your favor.
Theta is a cost for option buyers and a benefit for option sellers. A trader who buys a call or put is fighting time decay every day the position is open. A trader who sells a covered call or a cash-secured put is collecting that same decay as their edge, which is the basic mechanic behind many income-focused options strategies.
Theta shows up most directly when deciding how long until expiration to buy an option (longer-dated options decay more slowly per day but cost more upfront), and when estimating how much a position needs to move, and how quickly, to overcome the daily cost of holding it.