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As days tick off of call options, time value decays. My question is does that happen automatically at 9:30AM at market open or does it get continuously deducted as the day ticks on?

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The time value decay is theoretically constant. In reality, it is driven by supply and demand, just like everything else in the market.

For instance, if a big earnings announcement is coming out after the close for the day, you may see little or no time decay in the price of the options during the day before.

Also, while in theory options have a set value as related to the trading price of the underlying security, that does not mean there will always be a buyer willing to pay a premium as they come close to expiration (in the last few minutes). You can't forget to account for the transaction fees associated with buying the options, or the risk factor involved.

It is rare, but there are times I've actually had to sell in the money calls at a penny or two LESS than they're actually worth at the time just to unload them in the last few minutes before the market closed on expiration day.

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    "The time value decay is theoretically constant" - it's definitely not constant! Just open an options textbook and look for the formula of theta, using any option pricing model. You'll see that time is a variable there. That means precisely that it's not a constant.
    – Bruno Reis
    May 3, 2017 at 8:31
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    I said the time value DECAY is theoretically constant. Meaning that it is constantly decaying, over a period of time; at least in theory. I did NOT say that it is A constant. BIG difference.
    – Keith
    May 3, 2017 at 15:50
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    Probably a better choice of word would then be something like, "time value is continuously decaying"? Because the word constant means... constant. As in, something that doesn't change. But, as you seem to know, time value decay does change over time.
    – Bruno Reis
    May 4, 2017 at 6:24
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    Since this Question with Answers was linked to a current post, some comments. Time decay is constant and is continuously marked down by the market maker. Demand drives option price and it overrides time decay. In its absence, the MM marks the option down continuously. As for a pending earnings announcement, little change in price from the previous day or even a jump in price has to do with demand and implied volatility expansion. Theoretical value is less. Actual value is higher.
    – Bob Baerker
    Jun 15, 2018 at 14:25
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    As for options trading below a few cents below parity on expiration day, that's the MM screwing you in return for accommodating you. OTOH, sometimes the haircut is much larger than "a penny or two LESS" and if the commissions involved are less than the haircut, one can a save a few bucks by exercising and unloading the underlying. I don't pay commissions for assignment and exercise so I often do this.
    – Bob Baerker
    Jun 15, 2018 at 14:25
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If you're talking about just Theta, the amount of decay due to the passage of time (all else being equal), then theoretically, the time value is a continuous function, so it would decay throughout the day (although by the day of expiry the time value is very, very small). Which makes sense, since even with 15 minutes to go, there's still a 50/50 shot of an ATM option expiring in-the-money, so there should be some time value associated with that one-sided probability. The further away from ATM the option is, the smaller the time value will be, and will be virtually zero for options that are deep in- or out-of-the-money.

If you're talking about total time value, then yes it will definitely change during the day, since the underlying components (volatility, underlying price, etc.) change more or less continually.

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It has been my experience as an amateur trader, theory aside, that I generally see the time value come off at market open and not much during the trading day.

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  • Thanks, that was the answer/dynamics I was looking for.
    – VH-NZZ
    Jan 15, 2021 at 10:36
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The time value of the option (theta) decays constantly (by the millisecond)

As it is one of the inputs to the option pricing model, it usually has a lower impact on the overall option price than other changes in the market.

As the (US) markets price options in penny ($0.01) or nickel ($0.05) increments, you will only observe these changes when the impact of theta is big enough for the market maker to increase or decrease his bid or offer by another $0.01 or $0.05.

This will happen slowly throughout the day but should be more significant from one day’s close to the next day’s open particularly if there is a weekend or long weekend in between.

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This has been my observation in the markets pertaining to option decay. Bulk of the decay happens in the first 15 minutes of trade at market open. Rest of the decay usually happens in pulses whenever market breaks out of ranges intraday. So if its call option and market breaks a range to the downside, call option will experience decay in proportion to time elapsed since open.

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