# Expiration and time decay (Options 101, lesson 4 of 10) Canonical URL: https://mrkts.gg/learn/options/time-decay Last updated: Nov 9, 2026, 9:00 AM ET > Why options lose value as expiration nears, why the last week costs the most, and what theta means per contract. A free lesson with examples. What you'll be able to do: Explain theta, why decay accelerates near expiration for ATM options, and what happens to extrinsic value at expiration. ## Time is part of the price Take the 50 call on a $50 stock with 60 days left. It has no intrinsic value, yet it costs 2.42. You're paying for 60 days of chances. Every day that passes takes some of those chances away. That steady leak is time decay, and its size is called theta. > **Key idea:** Only extrinsic value decays. At expiration it's zero, and only intrinsic value is left. ## Decay speeds up *Chart (Call value (per share) against Days to expiration, priced with Black-Scholes):* Value of a 50 call on a flat $50 stock as expiration approaches, IV 30%. The line drops faster near the right edge. 1. From 60 to 30 days left, the call loses 0.70, about 0.023 a day. 2. From 7 to 1 days left, it loses 0.52, about 0.087 a day. 3. Same stock, no move at all, and the daily loss more than triples. ## Why it speeds up Think about how far the stock could wander. With 60 days left it has plenty of time. With 7 days left, much less. At the money, an option's value tracks roughly the square root of the time left. 1. Start with 2.42 at 60 days (the square root of 60 is about 7.75). 2. At 30 days: 2.42 × 5.48 ÷ 7.75 is about 1.7. 3. At 7 days: 2.42 × 2.65 ÷ 7.75 is about 0.83. 4. At 1 day: 2.42 × 1 ÷ 7.75 is about 0.31. > **Tip:** The square-root rule is a close shortcut. The full pricing model gives 1.72, 0.83 and 0.31 for those days. ## Not every option decays the same Put the 50 call next to the 55 call on the same $50 stock. With 60 days left the 50 call costs 2.42 and the 55 call 0.79. With 14 days left they cost 1.17 and 0.07. *Chart (Call value (per share) against Days to expiration, priced with Black-Scholes):* A 50 call and a 55 call on a flat $50 stock, IV 30%. The at-the-money call starts higher and falls further in dollars. Both end at zero. Decay can only take away extrinsic value, and an option can't lose more than it has. The 55 call needs the stock to climb past 55, so it starts with little time value. The 50 call sits at the money, where the outcome is least certain, so it carries the most to lose. 1. From 60 to 30 days left, the 50 call falls from 2.42 to 1.72. That's 0.70, or $70 per contract. 2. The 55 call falls from 0.79 to 0.30. That's 0.49, or $49 per contract. 3. As a share of its price, the 50 call lost about 29% and the 55 call about 62%. > **Key idea:** Dollars lost to decay depend on how much extrinsic value is left to lose. An out-of-the-money option can lose a big share of its price and still lose few dollars. ## Who decay helps | Buyer (long option) | Seller (short option) | | --- | --- | | Theta is negative: decay costs them | Theta is positive: decay pays them | | Needs the stock to move enough to beat decay | Profits if the stock stays put | | Risk: losing the premium | Risk: one big move can erase many days of decay | > **Watch out:** Common mistake: selling options isn't free money. Decay is the payment for taking the risk of a big move. ## Worked example: A 50-strike call on a flat $50 stock (IV 30%, no rates or dividends) *Illustrative numbers, not real quotes.* Hold the stock at $50 and let the days pass. Here is the 50 call's value as time runs out: | Days left | Call value | Lost since the row above | | --- | --- | --- | | 60 | 2.42 | | | 30 | 1.72 | 0.70 over 30 days (about 0.023/day) | | 14 | 1.17 | 0.55 over 16 days (about 0.034/day) | | 7 | 0.83 | 0.34 over 7 days (about 0.049/day) | | 1 | 0.31 | 0.52 over 6 days (about 0.087/day) | Per contract, the last stretch costs about $8.70 a day vs about $2.30 a day two months out. - The loss per day more than triples, from about 0.023 to about 0.087, with the stock not moving at all. - All of it is extrinsic value. The call is at the money, so intrinsic value is 0 the whole way. Now compare it with a far out-of-the-money 55 call on the same stock: | Days left | 50 call (ATM) | 55 call (OTM) | | --- | --- | --- | | 60 | 2.42 | 0.79 | | 30 | 1.72 | 0.30 | | 14 | 1.17 | 0.07 | | 7 | 0.83 | 0.01 | - The ATM call has more to lose, so it loses more dollars a day. - The OTM call loses less in dollars, but over 30 days it still falls from 0.79 to 0.30, about 60% of its price. ## Practice The page has 7 practice questions and 5 mastery checks for this lesson, with feedback on each wrong answer: https://mrkts.gg/learn/options/time-decay Next lesson: [Implied volatility and earnings IV crush](https://mrkts.gg/learn/options/iv-and-earnings.md) Education only, not investment advice. Example numbers are illustrative, not real quotes. --- Get the Desk's daily market feature by email: https://mrkts.gg/newsletter?ref=ai&src=learn-time-decay AI-assisted commentary. Not investment advice.