Theta Decay Curve Calculator

What Is Theta?

Theta (Θ) measures how much an option’s price decreases each day, all else being equal. It is one of the options Greeks and represents the daily cost of holding an option position. This calculator visualizes the entire decay curve — showing exactly how an option loses value from your entry date to expiration.

How to Read the Decay Chart

The curve shows the theoretical price of your option at a fixed stock price over time. The x-axis runs from your entry DTE (left) to expiration (right). The steeper the curve, the faster the option is losing value to time decay. Notice how the curve shape changes dramatically based on moneyness: ATM options plummet near expiration, while deep OTM and ITM options flatten earlier.

The shaded area between the option price curve and the intrinsic value line represents the extrinsic (time) value. This shaded region always shrinks to zero by expiration — that’s what theta destroys.

Intrinsic vs. Extrinsic Value

Intrinsic value is what the option would be worth if exercised today. For calls: max(S − K, 0). For puts: max(K − S, 0). Out-of-the-money options have zero intrinsic value.

Extrinsic value (also called time value) is everything above intrinsic value. This is the portion that theta erodes. An at-the-money option is entirely extrinsic value, making it fully exposed to time decay.

Decay by Moneyness

• ATM options experience accelerating decay as expiration approaches. They hold onto extrinsic value the longest, then lose it rapidly in the final days.
• OTM options decay steadily at first, then slow near expiration — by then, there’s little value left to lose.
• ITM options are partially sheltered from decay because only the extrinsic portion erodes. The deeper ITM an option is, the more of its price is intrinsic (protected from theta).

Why Theta Isn’t Linear

Think of implied volatility as defining an expected move cone around the current stock price. As expiration approaches, that cone narrows. ATM strikes stay within the cone the longest — they’re pricing in stock price movements until the very end. That’s why ATM options hold onto extrinsic value longer and then decay rapidly near expiration.

OTM and deep ITM strikes fall outside the expected move range earlier. Once a strike is far outside the cone, the market stops pricing in much probability of it mattering — so extrinsic value bleeds out sooner and the decay curve flattens. Higher IV widens this cone, keeping more strikes “in play” longer and steepening their decay curves.

When Theta Can Be Positive

Theta is usually negative (options lose value over time), but it can be positive in certain edge cases. Deep in-the-money puts and high-dividend-yield calls can theoretically gain value as time passes due to the interplay between interest rate effects and dividend adjustments in the Black-Scholes model. This is rare in practice but worth knowing when interpreting the calculator’s output.

Practical Considerations

Real-world decay differs from the smooth theoretical curve shown here. Implied volatility changes daily (it’s not constant as Black-Scholes assumes), which shifts the entire decay profile. American-style options can be exercised early, adding complexity not captured by this European-style model. Discrete dividend payments (vs. continuous yield) also cause jumps around ex-dividend dates.