theta

The suya seller at the roadside in Wuse knows that meat on the grill after 10pm is worth less than the same meat at 7pm, and not since it has gone bad, but because the night is ending and fewer customers are coming. Every hour that passes without a sale is an hour of value calmly leaking away.

Theta works the same way for anyone holding an options contract. An option is a contract that gives you the right to buy or sell a stock at a certain price before a certain date. That date matters enormously, because the closer it gets, the less time there is for the stock to move in your favour, and so the option itself becomes less valuable, even if the stock price has not budged an inch.

Theta is simply the number that measures this daily decay. If an option has a theta of ₦50, it means that option is expected to lose about ₦50 in value for every day that passes, all else being equal. It is the clock ticking against you if you bought the option, and the clock ticking in your favour if you sold it.

A Nigerian trader with an account on a platform offering United States listed options might buy a call option on a tech stock, hoping the price rises before the contract expires in three weeks. Each day that the stock stays flat, theta calmly eats into the value of that call, the same way school fees paid in advance shrink in real worth the longer inflation runs before the term even starts.

This is why option sellers often like theta and option buyers often fear it. If you sold that same call, time decay is working like rent collected daily, paying you simply for waiting, as long as the stock does not move against you first.