Time decay

Why options lose value as the clock runs.

4 min · Advanced · Lesson 13 of 17

Step 1 of 4

The clock is part of the price

Time value shrinks as expiration approaches, a process called time decay (theta). If the stock doesn't move, an option buyer loses a little value every day.

Decay usually speeds up in the last weeks before expiration, especially for at-the-money options.

A $100 call's value as expiration nears (stock at $100)

Days left until expiration

Days left: 60Stock price: $100

Option value: $5.17
Intrinsic value: $0.00
Time value: $5.17
Lost in the last week: −$0.31

Per share; one contract is 100 shares. Made-up stock, 30% volatility, Black-Scholes model.

Slide the days left toward zero: the option loses value even though the stock doesn't move.

For entertainment and education, not investment advice.