Theta Decay
Theta decay is the loss in an option's value that comes purely from the passage of time, assuming the price and volatility stay the same. Theta, one of the option Greeks, measures how much value an option loses per day.
Why time costs money
An option's price has two parts: intrinsic value, what it would be worth if exercised now, and time value, the extra buyers pay for the chance of a favorable move before expiry. The less time remains, the smaller that chance, so time value shrinks. At expiry, time value is zero and only intrinsic value is left.
Theta is usually shown as a negative number for option buyers. A theta of minus 20 dollars means the option is expected to lose about 20 dollars of value in one day, all else unchanged.
Decay is not linear
Time value does not melt evenly. It falls slowly when expiry is months away and accelerates in the last weeks and days. At-the-money options have the most time value and therefore the largest theta in absolute terms. Deep in- or out-of-the-money options have less time value to lose.
In crypto, options trade every day including weekends, so decay is often modeled across all calendar days.
An example
Say you buy an ETH call with 30 days to expiry for 120 dollars, and ETH barely moves. After two weeks, the option might be worth around 80 dollars; in the final week, it might lose most of the rest. Unless ETH rises above the strike before expiry, the call finishes worthless. The numbers here are illustrative; actual decay depends on volatility and the distance to the strike.
Who benefits and who pays
Option buyers pay theta: time works against them, so they need the price to move enough and soon enough. Option sellers collect theta: if nothing much happens, the options they sold lose value and they keep the premium. That steady income is why selling options appeals to many traders, but sellers carry the risk of sudden large moves, which can cost far more than the premiums collected.
Ask Coach about it
Coach is the AI on AtenaCrypto. It explains crypto with live market data, in plain words.
How does theta decay interact with implied volatility when I hold a crypto option over a week?Ask Coach →
Frequently asked questions
Does theta decay happen on weekends in crypto?
Yes. Crypto markets trade every day, and option pricing generally accounts for time passing on weekends too.
Why do options lose value faster near expiry?
Because there is less time left for a large move, the remaining time value shrinks at an accelerating rate, especially for at-the-money options.
Can volatility offset theta decay?
Yes. If implied volatility rises or the price moves strongly, an option can gain value despite time passing.
Related terms
Learn it step by step
AC Learning explains these ideas in interactive lessons — the first eight sections are free.
Open AC Learning → Create a free accountAll glossary terms · Educational reference only — not investment, legal, tax or financial advice.