Market Measures

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Collecting Theta

Market Measures

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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.

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