Options
Theta — Definition & Example
The rate of premium decay per day — the cost of holding a long option position over time.
Theta quantifies time decay as a daily premium loss (negative for long options, positive for short option sellers). Theta accelerates as expiry approaches and is highest for ATM options. Strategies like covered calls and credit spreads aim to collect positive theta; long-option speculation must overcome negative theta with directional movement.
Example
NIFTY 24500 CE has theta -2.50. With everything else unchanged, the option will lose approximately ₹2.50 in premium per calendar day. Over a weekend (3 days), expect ₹7.50 of decay.
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