Market Measures

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Portfolio Theta Ratio - Varying Deltas

Market Measures

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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?

Study:
  • 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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