Theta decay is the gradual reduction in an option's extrinsic (time) value as the expiration date approaches. Every day that passes, an option loses some of the time value it was priced with — even if the stock price does not move at all. This erosion is measured by the Greek letter Theta.
For option buyers, theta decay is a constant headwind — they are losing money every day simply from time passing. For option sellers (like wheel strategy traders), theta decay is the primary profit engine. As the option you sold loses value, you can buy it back cheaper or let it expire worthless — keeping the full premium as profit.
Theta decay is non-linear and accelerates as expiration approaches. Options in their final 30 days lose value fastest in percentage terms, which is why 21-45 DTE is the sweet spot for most option sellers.