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The Battle of Theta and Gamma

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Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

Theta and gamma are two greeks that can be used as a proxy for return and risk respectively.

We show how theta and gamma increase exponentially closer to expiration (for an at-the-money option).

Finally, we explain that since options have a lower risk and lower reward profile in the beginning of a trade, and a higher risk/reward profile near the end of the trade, we like to exit the trade early, so that we achieve a moderate risk/reward profile.

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