Time Decay (Theta)

Every day that passes, an option loses some value even if the stock price does not move.

Time decay accelerates in the last week before expiry. Most of the premium melts away.

Option sellers benefit from time decay. Option buyers fight against it.

In India's weekly expiry system on NSE, time decay is brutally fast. Nifty and Bank Nifty options expire every Thursday, which means options bought on Monday already start losing value rapidly by Wednesday. Most retail traders who buy weekly options lose money specifically because of time decay, not because their market direction was wrong.

The speed of time decay is not constant, it follows a curve. An option with 30 days to expiry might lose ₹2 per day to Theta. But the same option with only 3 days left could lose ₹10-15 per day. This is why experienced traders on Zerodha avoid buying options in the last 2-3 days before expiry unless they expect a very sharp move from an event like RBI policy or quarterly results.

Option sellers (writers) in India love time decay because it works in their favour. Many full-time traders on NSE run strategies like selling out-of-the-money Nifty options on Monday and letting Theta erode the premium through the week. By Thursday expiry, the options often expire worthless, and the seller keeps the entire premium collected. However, selling options carries unlimited risk and requires significant margin under SEBI rules.

To understand time decay practically, check the Theta value on your broker's option chain before buying. If you are paying ₹150 for a Bank Nifty Call option and Theta is -₹30, you are losing ₹30 per day (20% of your premium daily) just by holding. Unless you expect Bank Nifty to make a big move within 1-2 days, that trade is likely to lose money. STT (Securities Transaction Tax) on exercised options adds another cost that eats into already decaying premiums.