Today we dive into comparing how close theta decay is to daily P/L.
We see thatdecay in the first half of the trade can be used to gauge daily P/L as they are fairly .
However, as we get into the second half of the trade, theta drastically overstates P/L. Why is this?
risk erodes at our P/L near the end of a trade, so even though theta increases, P/L is much more sporadic. This makes the case to manage winners early in order to avoid the exposure to gamma.