Theta
The option Greek that measures how quickly value is lost as time passes (time decay). Long options lose theta every day — especially close to expiry.
Definition
Theta is the Greek that describes how the passage of time affects the value of an option — a long option normally loses time value every day (negative theta), while a short option can benefit from it (all other factors held equal). The pace accelerates close to expiry for many ATM and OTM contracts.
Example
You hold a long call with 30 days to expiry; for a week the underlying goes nowhere and IV is unchanged — the premium falls mainly because of theta. Your “direction was fine”, but time ate the edge.
Anti-example / common mistake
Buying cheap, short-dated OTM options “because they cost so little” without realising how fast theta works. Or selling theta with no limit on the risk from a sharp move and a jump in IV.
Verifiable sources
Theta is part of option pricing models (Black-Scholes, 1973; in market practice also models with a volatility smile). Educational material from the US Options Industry Council (OIC) and from CBOE defines time decay and shows the theta profile at different strikes and days to expiry. Historical option data (tick archives, for example) illustrates how value decay accelerates close to expiry — verify it on a real theta chart rather than trusting memes about “selling theta being a free edge”.