Options Greeks
What is Theta and how does it quantify the daily non-linear decay of extrinsic value?
By Easy Money Scanner · Educational reference · Not investment advice
The short answer
Theta quantifies the dollar amount an option's extrinsic value is expected to decline per day, all else equal, reflecting the erosion of time value as expiration approaches.
How it works
Theta decay is non-linear, accelerating notably in the final 30 to 45 days before expiration, so option sellers often benefit most from holding positions during that late-stage window.
An example
An option with a theta of -0.05 is expected to lose about $5 per contract per day in extrinsic value, holding the stock price and volatility constant.
Risk & limitations
Theta estimates assume all other variables remain fixed, but a moving stock price or changing implied volatility can overwhelm or offset the projected daily decay.
Examples are hypothetical, not trade recommendations. US contract and regulatory references do not automatically apply in Canada. Rules, margin requirements and broker policies can change; confirm them with the relevant authority and your broker.