Introductory Context
"Theta measures the daily change in options premium purely from time passage, holding everything else constant. Always negative for option buyers (daily cost). Always positive for option sellers (daily income). ATM options have maximum absolute theta. Theta accelerates as expiry approaches. Knowing exact daily theta cost is the foundation of time-conscious position management."
Theta — Definition and Daily Cost Calculation
Theta = Change in option premium per one day's passage of time (all else equal). For a Nifty ATM call with theta −₹12 per unit: each trading day reduces the premium by ₹12 per unit holding Nifty and VIX constant. On 1 lot (75 units): daily theta cost = ₹12 × 75 = ₹900 per day. Over 5 flat days: total theta cost = ₹4,500.
For the option seller who sold the same call: theta of +₹12 per unit means ₹900 per day income — the option is decaying, reducing the seller's repurchase cost. This is the theta income that makes options selling attractive in flat market conditions.
Theta Sign Convention
Long options: theta always negative (daily cost). Short options: theta always positive (daily income). Sensibull and platforms typically display theta as a negative number per unit per day — ensuring you see it as a cost for long positions rather than a gain.
Theta Across Strikes and Time
Theta peaks at ATM and decreases toward deep ITM and deep OTM. ATM options have maximum time value to decay at the fastest absolute rupee rate. The acceleration curve (from Topic 6.16) means theta is not constant — it increases as expiry approaches.
Theta for typical Nifty ATM weekly call: Monday ≈ ₹10/unit, Tuesday ≈ ₹12, Monday ≈ ₹15, Tuesday morning ≈ ₹40+/unit for the final session
The option that cost ₹10 per day in theta on Monday costs ₹20 per day by Monday — same option, same strike, accelerating cost purely from time passage.
Expressing Theta as a Daily Cost
Before holding any position overnight: express theta as a daily rupee cost. '1 lot of ATM Nifty call is costing me ₹900 per day in theta' is more actionable than 'theta is −12.' If Nifty stays flat for 3 days, your position loses ₹2,700 purely from theta — before any adverse directional move. This daily cost visibility drives the discipline of timely exits.
Theta and the Holding Decision
Expected gain per day (from anticipated Nifty move) vs theta cost per day. If expected gain < theta: the structure is losing money before markets move against you.
Time remaining vs required move. If 3 days remain and 300-point break-even is needed: Nifty must move 100 points/day on average — is this realistic?
Theta as exit trigger. When accumulated theta exceeds 40% of original premium: clear exit signal.
Theta is the rent you pay for the option's existence. Every day without a meaningful move in your favour is a day you pay rent with no corresponding benefit. Options have a defined expiry. Theta is the bill the market sends every day. Pay attention to it daily, not just at entry