Wheel Glossary
Theta decay in Wheel Trading
Theta decay means the day-by-day erosion of option extrinsic value. It matters because short premium strategies harvest theta when price and volatility cooperate.
Definition
The day-by-day erosion of option extrinsic value.
- Translate the term into position sizing and trade management, not just vocabulary.
- Ask how the term changes your entry, adjustment, or exit.
Why it matters in the wheel
Short premium strategies harvest theta when price and volatility cooperate.
- A useful definition should change what you track each week.
- If the term does not affect capital, assignment, or premium quality, it is usually secondary.
Common mistake
Assuming theta will save a position that is moving hard against you.
- Most wheel errors come from skipping the denominator behind the term.
- Write the term in plain language inside your trade notes before you use it.
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