Theta is the rate at which an option loses extrinsic value as time passes, holding everything else constant. A theta of −0.05 means the option loses about 5 cents per day from time decay alone, before any underlying move or volatility change.
Decay is not linear. Theta accelerates as expiration approaches — most of an option's time value evaporates in the final two weeks of its life. Buying a 7-day option means you need the underlying to move quickly *and* in your direction; sitting on it for three days costs roughly half the premium you paid even if the stock hasn't moved at all.
For options sellers, theta is the source of edge. The premium collected on a short option is paid out smoothly as the option approaches expiration worthless. Strategies like cash-secured puts and covered calls earn most of their P&L from theta — small, consistent decay collection in exchange for accepting tail risk on the position.
For options buyers, theta is the headwind that turns most long options trades into losers even when directionally correct. The retail journal pattern is consistent: trader buys a slightly out-of-the-money call, stock drifts up modestly over two weeks, option still ends below the entry premium because theta ate the gain. The math says you need a sharp, fast move to overcome time decay on long options — slow and steady is enough for the underlying stock but lethal for the option position.