Theta — the melting ice cube
Options lose value every day. See how fast, and why the last week is brutal for buyers.
Time value is an ice cube
Remember: premium = intrinsic value + time value. The time value part has a hard deadline — on expiry day it must be zero. So it melts a little every single day, whether the market moves or not.
Theta = how many rupees an option loses per day, if nothing else changes.
The 22400 CE (7 days left, NIFTY 22,400) has theta ≈ −₹13.5. Hold it overnight and, with NIFTY unchanged, it's worth about ₹13.5 less tomorrow. For one lot that's ₹878 a day just for waiting.
The melt speeds up
Here is the same ATM call priced with NIFTY frozen at 22,400 as expiry gets closer:
| Days left | 30 | 21 | 14 | 7 | 3 | 1 |
|---|---|---|---|---|---|---|
| Premium (₹) | 395.25 | 321.95 | 256.20 | 175.10 | 111.40 | 62.80 |
| Theta (₹/day) | −7.7 | −8.7 | −10.2 | −13.5 | −19.6 | −32.4 |
From 30 to 21 days it lost ₹73 in 9 days. From 7 to 1 day it lost ₹112 in 6 days. The last week burns faster than the first three weeks.
Notice the OTM option (yellow): it starts at ₹252 but is worth just ₹1.55 on the last day. If NIFTY never gets near 22,700, all of it melts — that's why so many cheap OTM options expire worthless.
Who wins from theta?
Buyers: theta is rent
- Every day costs you money.
- You need the move to come SOON.
- Buying weekly options on the last 2–3 days is fighting the steepest part of the curve.
Sellers: theta is income
- Every quiet day pays you.
- Time is on your side — as long as the market behaves.
- This is why so many traders sell options… and why gamma risk is the price they pay.
Weekends and holidays
Theta is quoted per calendar day, but markets are shut on weekends. In practice, traders anticipate the weekend: option prices often drift lower on Friday afternoon, pricing in Saturday and Sunday's decay before it happens. Don't expect a free gift on Monday morning.
Quick check
NIFTY doesn't move at all for 3 days. What happens to your bought ATM call?