Today, we want to explore that further and see how much P/L, on average, we keep as a percent of our expected daily theta.
A current theta of 9 means that theoretically, all other variables equal, the strangle will get $0.09 cheaper by tomorrow, thus yielding a profit to option sellers of $0.09 x 100 = $9.00.
So, what percent of that $9 do we actually see in our daily P/L historically?
We find that in the first ½ of the trade, on average, we collect 52% of our theta in our daily P/L… but in the second half, we only collect 11%.
This makes the case to manage early as theta no longer becomes a reliable metric in the second half of the trade.