Premium Decay
Definition
The gradual erosion of an option's extrinsic (time) value as time passes toward expiration. Decay accelerates significantly in the final 30 days, particularly for at-the-money options.
Formula / Rules
Measured by Theta (Θ) — daily dollar loss from time passage
Example
An option with $2 of time value with 7 days to expiration decays much faster than one with 60 days remaining.
Related Terms
Frequently Asked Question
What is Premium Decay in options?
Premium decay (theta decay) is the daily erosion of an option's time value. It accelerates in the final weeks before expiration — the reason option sellers prefer 30-45 DTE entry points.
APA Citation
Last updated:
· Source: VixShield Trading Glossary — From SPX Mastery by Russell Clark
⚠️ Not financial advice. This definition is educational content from the SPX Mastery book series by Russell Clark (VixShield). Past performance is not indicative of future results. Trading options involves substantial risk of loss and is not appropriate for all investors. Always paper trade before risking real capital.