What does theta mean for options?

Theta (Θ) is the rate at which an option loses value each calendar day due to time passing, assuming the stock price and volatility stay the same. It is always negative for long options (you lose premium as time passes) and positive for short options (you collect that decay). A theta of -0.05 means the option loses $0.05 of value per day, or $5 per standard 100-share contract.

Why is theta negative for buyers and positive for sellers?

Long option holders own a decaying asset — every day that passes without a favorable move reduces the option's time value. Short option sellers (e.g. covered call writers) benefit from this decay. Theta represents the same dollar amount regardless of perspective; the sign just flips based on whether you are long or short.

Does theta decay accelerate near expiration?

Yes. Theta is not linear — it accelerates significantly in the final 30 days before expiration, and especially in the last week. An at-the-money option loses a larger fraction of its remaining premium each day as expiration approaches. This is why options sellers often prefer shorter expirations and buyers prefer more time.

What is the difference between call and put theta?

For most practical cases, call and put theta are similar in magnitude for the same strike and expiration. Put theta can be slightly less negative than call theta (especially for deep in-the-money puts with high rates) because puts benefit slightly from the interest component in Black-Scholes. The tool shows both so you can compare directly.

Does this work for American options?

No. Black-Scholes prices European options (exercisable only at expiration) and assumes no dividends. American option theta may differ, especially for deep in-the-money puts where early exercise has value. For American options or dividend-paying stocks, a binomial tree model gives more accurate results.

How do I convert theta per day to weekly or monthly decay?

Multiply daily theta by 7 for weekly decay, or by 30 for monthly decay. Because theta accelerates near expiration, these estimates become less accurate the closer you are to expiry — the tool shows a 7-day total as a useful approximation. For a spread held exactly N days, N × daily theta gives a rough estimate.

Option Theta Calculator

Enter your option parameters to see daily theta decay in dollars per contract for both call and put options.

Option Parameters

Stock Price (S) — current underlying price

$1$500

Strike Price (K)

Days to Expiration (DTE)

Implied Volatility (σ) — annualized %

Risk-Free Rate (r) — annualized %

Theta (Θ) — Daily Decay

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Call Theta / Day

—

per day

Put Theta / Day

—

per day

Call Decay — 7 Days

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Put Decay — 7 Days

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Theta Decay by Time Horizon

Period	Days	Call Decay	Put Decay
Enter parameters above to see decay breakdown.

All Option Greeks (per share)

Call / Put

— / —

Time decay per calendar day ($)

Call / Put

— / —

Price change per $1 move in stock

Same for call & put

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Rate of delta change per $1 move

Same for call & put

—

Price change per 1% vol rise ($)

d₁ = —

d₂ = —

Summary

Theta measures how much an option loses in value each calendar day due to time passing — all else being equal. A call theta of -$0.05 means you lose $5 per day on a standard 100-share contract. This tool uses the Black-Scholes closed-form formula to calculate theta for European call and put options and shows how decay accelerates as expiration approaches.

How it works

Enter the current stock price (S) and the option strike price (K).
Set days to expiration (DTE) — the tool converts to years automatically.
Input annualized implied volatility as a percentage from your broker's options chain.
Enter the risk-free rate (e.g. the current 3-month T-bill yield).
Theta per day and weekly decay appear instantly for both calls and puts.
The result shows both daily theta and the corresponding seven-day decay estimate.

Use cases

Calculate how much premium you collect per day when selling covered calls or cash-secured puts.
Estimate total time decay cost over a holding period for long options.
Compare theta across different strikes and expirations before entering a spread.
Understand why short-dated options decay fastest — important for weekly expiry strategies.
Verify theta for CFA, FRM, or Series 7 exam practice problems.
Assess whether the theta collected on a short position justifies the gamma risk.
Plan position sizing by knowing the daily dollar decay on a contract.

Frequently Asked Questions

Last updated: 2026-06-15 · Reviewed by Nham Vu