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Portfolio Theta: Part Two

From Theory To Practice

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Back in part one of portfolio theta, we talked about setting up our portfolios with a target of 0.1% to 0.2% of our net liquidating value in total portfolio theta. Using the Realistic Expectations segment done by the research guys, we can then set up some expectations for annual returns. Specifically, if we capture 25% of our total portfolio theta, then we’re looking at an estimated 9% annual return in theta alone. Of course, this is no guarantee, but it does give us a reference point for how we structure our portfolios.

In today’s segment, we extend this discussion by dissecting the different ways to accumulate theta – with defined risk strategies and with undefined risk strategies. Also, we talk about the different ways to interpret the actual capture of theta.

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