The Small Exchange!

Learn more about the Small Exchange futures products in the tastytrade Learn Center!

Take the Course

Market Measures

Monday – Friday | 9:00 – 9:20a CT

Theta Ratio in a Portfolio

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.

As option sellers, our profits come from the daily decay in option prices. But how much Theta should we have in our account? In this piece the Research Team looks at the historical daily Theta Ratio in an account of SPY strangles both holding to expiration and managing early.

The Study:
  • SPY
  • 1 SD Strangles
  • 2005 – 2018
  • 45 Days to Expiration
  • Held to Expiration
  • Recorded the Daily Theta Ratio (Theta / Asset Value)
  • $1M Account, 25% Capital Allocation

For a portfolio of short strangles in SPY to outperform long SPY the strangles need to be managed at 21 DTE. This portfolio maintains a median Daily Theta Ratio of around 0.05% the Asset Value.

Market Measures More installments

See All »

Latest tastytrade Videos As of May 28

Most Shared From the last 30 days