Does theta always lose money?

Theta is an estimate of time decay assuming the underlying and implied volatility do not change; other factors can offset it.

Which strategies collect theta?

Net short-premium strategies such as cash-secured puts, covered calls and credit spreads.

Concept guide

Theta estimates how much value an option loses per day from the passage of time, all else equal.

Concept

option value loses extrinsic value as expiration approaches

The probability that an out-of-the-money option finishes in the money falls as expiration approaches, so its extrinsic value decays.

Decay is slow early and accelerates in the final weeks, which is why short-dated buyers face the steepest time cost.

Premium sellers collect theta; premium buyers pay it. The trade-off is that sellers usually take on more risk than the premium collected.

Does theta always lose money?: Theta is an estimate of time decay assuming the underlying and implied volatility do not change; other factors can offset it.
Which strategies collect theta?: Net short-premium strategies such as cash-secured puts, covered calls and credit spreads.