Options have a limited contractual life. The modeled change in option value caused by the passage of time, holding other pricing inputs fixed, is called time decay and is measured by theta. A market premium can still rise if price or volatility changes outweigh the time effect.
At-the-money options often have substantial time value to lose. Far out-of-the-money options can lose their entire premium, while in-the-money options may retain intrinsic value. Moneyness, implied volatility, rates and dividends affect the daily decay; the percentage of premium lost and the dollar loss are different measures.
At-the-money time decay often accelerates near expiration, but there is no universal 30-to-60-day threshold. A stock move can also change moneyness and the rate of decay.
Explore option volatility research to compare market conditions alongside this lesson.
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Using the estimate
Greeks are local model sensitivities, not guaranteed price changes. They change as the stock, time and implied volatility change. Check whether a quoted value is per share or per contract, which volatility increment is used, and whether theta is measured per day or per year. Selling an option reverses the position’s Greek signs.
Compare moneyness under one model
Under the European Black–Scholes model with stock $100, IV 20%, zero rates and no dividends, approximate call values are:
| Strike | 30 days | 7 days | Expiration at stock $100 |
|---|---|---|---|
| $90 | $10.07 | $10.00 | $10.00 |
| $100 | $2.29 | $1.10 | $0.00 |
| $110 | $0.12 | $0.00 rounded | $0.00 |
The deep-in-the-money call retains intrinsic value while its small time value declines. The out-of-the-money call can lose most of its small premium even though its dollar decay is modest. The at-the-money call has larger dollar time value in this example. A rounded $0.00 model value before expiry is not a claim that every live option trades at zero.
These values are a controlled comparison, not forecasts. Actual stock moves, IV repricing, interest rates, distributions and American exercise can change the result. Use the pricing tool to reproduce the assumptions, and distinguish percentage loss of premium from dollar theta.
