theta

Discussion in 'Options' started by met1989, May 22, 2019.

  1. met1989

    met1989

    Assuming I'm just looking at theta not to worry about vega or gemma if theta is positive does it mean im making money every day?
     
  2. No, theta can be offset by delta (ie price moving against you).
     
    tommcginnis likes this.
  3. tommcginnis

    tommcginnis

    No. It does mean that the passage of time assists your net position, though.

    Remember that theta is a BSM "Greek" and as such, is a rate of change.
    The theta you see represents the mathematical derivation of the time portion --
    you still have delta (the market-movement portion) and 'vega' (the market vol portion) that could easily overwhelm whatever theta 'adds' to your net position.
     
  4. met1989

    met1989

    Thanks for your reply from the last book I read he says that options that are far from expiry are less sensitive to Vega?
     
  5. Wheezooo

    Wheezooo

    The opposite. Vol might moves less but Vega is larger, therefore options far from expry are more sensitive to vega.

    And theta and gamma are bedfellows. Not theta and vol, nor theta and delta. Heck, I was trained to never even think of Delta as a risk.
     
    Epicurus likes this.
  6. met1989

    met1989

    Wher
    e did u train ? I like your style
     
  7. Wheezooo

    Wheezooo

    For a boutique firm, as a member of the NYMEX and COMEX, but that will be 3 decades ago come this December.
     
  8. met1989

    met1989

    sounds cool and fancy

    may i ask if im selling a spread and my margin 550$ should i exit when its 10% margin profit?
     
  9. Wheezooo

    Wheezooo

    No idea, it's not how I think.

    But as a rule of thumb. If you are exiting your winners for 10% gains you better exit your losers at less than a 10% loss.
     
    drmark27 and qlai like this.
  10. gaussian

    gaussian

    LEAPS are generally over-exposed to vega. Intuitively this is because volatility out past a few days is very difficult to predict. As a result (intuitively) a small change in volatility today "spooks" the options later down the expiration cycle because there's a good chance the ATM won't be the ATM for long.
     
    #10     May 22, 2019