Quick definition
The continuous erosion of an option's extrinsic value as expiration approaches. Time decay is what theta measures and is the most reliable force in options pricing.
The decay curve
Decay is not linear. It accelerates sharply in the final three to four weeks and becomes nearly vertical inside the last week. This is why credit strategies typically open positions between 30 and 45 days to expiration — enough runway to weather noise, close enough to expiration to collect meaningful daily decay.
Long premium vs short premium
Long-premium traders are fighting time on every position and need directional movement large enough to overcome the daily bleed. Short-premium traders are collecting time and want the underlying to sit still. Neither is objectively better; each is a legitimate business model with different risk profiles. What matters is knowing which side you are on.
How Treeova uses it
Treeova displays per-position theta in the cockpit alongside realized P&L attribution, so traders can see, day by day, how much of their return came from decay versus directional movement. The Adaptive Risk Engine also scales stop widths based on time to expiration — a short-dated position needs different guardrails than a long-dated one.