Theta
Definition
The rate of time decay of an option's value — how much an option loses per day as it approaches expiration.
Explanation
All options lose value over time because the probability of a favorable outcome decreases as time passes. Theta is always negative for option buyers and positive for sellers. Time decay accelerates as expiration approaches — an option loses more value in its last week than in the previous month. At-the-money options have the highest theta. This creates the fundamental tension in options: buyers need the stock to move quickly (before theta erodes their position), while sellers benefit from the passage of time.
How Stoquity Uses This
Stoquity incorporates theta analysis across its portfolio management platform, providing real-time monitoring and AI-powered insights for every portfolio.