It is a measure of an option's sensitivity to time decay. Theta is the change in option price given a one-day decrease in time to expiration. It is a measure of time decay (or time shrunk). Theta is generally used to gain an idea of how time decay is affecting your portfolio.
Change in an option premiumTheta = --------------------------------------
Change in time to expiry
Theta is usually negative for an option as with a decrease in time, the option value decreases. This is due to the fact that the uncertainty element in the price decreases.
Assume an option has a premium of 3 and a theta of 0.06. After one day it will decline to 2.94, the second day to 2.88 and so on. Naturally other factors, such as changes in value of the underlying stock will alter the premium. Theta is only concerned with the time value. Unfortunately, we cannot predict with accuracy the change's in stock market's value, but we can measure exactly the time remaining until expiration.
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