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Theta/Gamma Ratio

Options Jive

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

The theta/gamma ratio can be thought of as how much you are getting paid per how much risk you are taking.

We find that we are getting paid 1 dollar for every one dollar of risk we take in Low IV environments. However, in high IV environments, we get paid 6 dollars for every dollar of risk that we take.

This is translated into a higher average daily P/L that we observe in high IV environments.

The theta/gamma ratio is another way of thinking about risk/reward in different IV levels.

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