Theta: The Silent Killer of Options
Theta measures how much value an option loses per day just because time passes. This is "Time Decay".
The Ice Cube Analogy
Imagine holding an ice cube in your hand. Even if you do nothing, it melts.
Options are melting assets.
Theta is Negative for Buyers
If you buy a Call option and Nifty goes sideways for 2 days, you lose money.
Theta = -20 means you lose ₹20 per day.
Theta is Positive for Sellers
This is the "Edge" of option selling. You can be wrong about direction and still make money if time passes.
Theta = +20 means you gain ₹20 per day.
Theta Curve
Theta does not decay linearly. It accelerates.
- Friday/Monday: Decay is slow to medium.
- Tuesday (Expiry): Decay is brutal. The "Ice Cube" is put in a microwave.
Strategy Insight: Option Buying is safest at the start of the week (Wed/Thu/Fri). Option Selling is most profitable at the end of the week (Mon/Tue) to capture fast decay.
*Disclaimer: NSE/BSE frequently revise Lot Sizes and Expiry Days (e.g., SEBI Circulars 2024/2025). Always check the latest circular on nseindia.com before trading.
Standard Disclosure: Investment in securities market are subject to market risks. Read all the related documents carefully before investing. The content provided here is for educational purposes only and does not constitute financial or investment advice. AlgoStraddle Academy is not a SEBI registered investment advisor. Trading options involves high risk and capital can be lost.