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Theta (time decay)

The amount an option loses in value each day as time passes.

OptionsIntermediate

Definition

Theta works against option buyers and for sellers. Decay is slow early on and speeds up as expiration nears, especially for at-the-money options.

Example

Hypothetical exampleAn option with theta of -0.05 loses about $5 per contract per day, all else equal.

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