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Portfolio Theta Ratio - Varying Deltas

Market Measures

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

In our last market measure, we have concluded that we observe a median theta/asset ratio of 0.05% in our accounts.

This means in a $10,000 portfolio, utilizing 25% of your account, you should expect a minimum of $5 of theta decay per day.

What about Strangles with different deltas?

  • SPY
  • 2005 - 2018
  • 45 Days-to-Expiration
  • Held-to-Expiration
  • Recorded the daily Theta Ratio (Theta / Asset Value)
    • $1M Account, 25% Capital Allocation
  • Varying Deltas:
    • 10, 16, 20, 30, 40, 50

We find that as delta increases, the median theta/asset ratio increases as well until the 30 delta strangle. The 40 and 50 delta strangles exhibit lower theta/asset ratios.

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