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Theta

Options: Why the Odds Are Stacked Against YouThe Hidden Challenges of Options Trading: Options trading may seem like an exciting way to profit from market movements, but beneath the surface lies a trading environment that is heavily biased against individual traders. Many retail investors jump into options trading unaware of the many disadvantages they face, making it more of a gamble than a calculated investment. In this post, we’ll explore the major challenges that make options trading so difficult for individual traders and why you need more than luck to succeed. 1. The Odds Are Biased: Complex Algorithms Unlevel the Playing Field The first thing to understand is that the playing field is not even. Professional traders and market makers use complex algorithms that evaluate a wide range of factors—volatility, market conditions, historical data, time decay, news and more—before they even think about entering a trade. These systems are designed to assess risks, manage exposure, and execute trades with a precision that most individual traders simply can’t match. For an individual trader, manually analyzing these factors or using basic tools available online is nearly impossible. By the time you’ve analyzed one factor, the market may have already shifted. The reality is that unless you have access to these advanced algorithmic systems, you're trading with a massive handicap. 2. Market Makers Hold the Upper Hand: Your Trades Are Their Game Market makers play a critical role in options trading by providing liquidity. However, they also hold an unbeatable advantage. They see both sides of the trade, control the bid-ask spreads, and use their position to ensure they’re on the winning side more often than not. For them, it’s not about making speculative bets; it’s about managing risk and profiting from the flow of orders they receive. When you trade options, you're often trading against these market makers, and their strategies are designed to maximize their advantage while minimizing their risk. This means your trades are, in essence, a bad gamble from the start. The house always wins, and in this case, the house is the market maker. 3. They Will Fool You Every Time: Bid-Ask Spreads and the Math You Don’t See One of the most overlooked challenges in options trading is understanding the bid-ask spread. This spread represents the difference between the price you can buy an option (ask) and the price you can sell it (bid). While this may seem straightforward, it’s an area where professionals easily outsmart retail traders. Advanced traders and market makers use complex mathematical models to manage and manipulate these spreads to their advantage. If you don’t have the mathematical skills to properly evaluate whether the spread is fair or skewed, you’re setting yourself up to overpay for options, leading to unnecessary losses. 4. Information and Tools: A Professional-Only Advantage Another critical challenge is the vast difference in information and tools available to retail traders versus professionals. Institutional traders have access to data streams, proprietary tools, and execution platforms that the average trader can only dream of. They can monitor market sentiment, analyze volatility in real-time, and execute trades at lightning speed, often milliseconds faster than any retail investor. These tools give professionals an enormous edge in identifying trends, hedging positions, and managing risk. Without them, individual traders are flying blind, trying to compete in an arena where the best information is reserved for the pros. 5. Volatility and Time Decay: The Ultimate Account Killers Two of the most critical factors in options trading are volatility and time decay (known as theta). These are the silent killers of options accounts, and pros use them to their advantage. Volatility: When volatility increases, option prices go up, which might sound great. However, volatility is unpredictable, and when it swings in the wrong direction, it can destroy your position’s value almost overnight. Professionals have sophisticated strategies to manage and hedge against volatility; most individual traders don’t. Time Decay: Time is constantly working against you in options trading. Every day that passes, the value of an option slowly erodes, and as expiration approaches, this decay accelerates. For most retail traders, this is a ticking time bomb. Pros, on the other hand, know how to structure trades to profit from time decay, leaving amateurs at a disadvantage. Conclusion: Trading Options Is No Easy Game The challenges of options trading are real and significant. Between the advanced algorithms, the market makers’ advantages, the mathematical complexities of bid-ask spreads, and the tools and information reserved for professionals, the odds are stacked against you. Add to that the constant threat of volatility and time decay, and it’s clear that options trading is a difficult and often losing game for individual traders. If you’re thinking about jumping into options trading, it’s crucial to understand the risks involved and recognize that the deck is stacked. To succeed, you need more than just a basic understanding—you need tools, strategy, and a deep awareness of how the pros operate. Without that, you're gambling, not trading.
NASDAQ:NVDAEducation
by CF_444
Options Blueprint Series [Advanced]: Reverse Time Iron Condors1. Introduction In today’s advanced options trading discussion, we introduce a unique structure—"Reverse Time Iron Condors"—using Corn Futures Options (ZCH2025). This sophisticated strategy leverages options with different expiration dates, allowing traders to position themselves for a potential market move in the mid-term. The Corn market has recently shown signs of slowing momentum, as indicated by technical indicators such as ADX (Average Directional Index) and RSI (Relative Strength Index) applied to ADX. Our analysis shows that RSI applied to ADX is oversold, and RSI is approaching a key crossover signal that could confirm an increase in volatility. Given this setup, the Reverse Diagonal Iron Condor (a.k.a. Reverse Time Iron Condor) structure aligns well with the market’s current conditions over two expiration cycles. CME Product Specs (Corn Futures ZCH2025) Contract Size: 5,000 bushels per contract. Tick Size: 1/4 cent per bushel (0.0025), or $12.50 per tick. Required Margin: USD $1,200 per contract at the time of producing this article. 2. Market Setup & Analysis To understand why the Reverse Time Iron Condor is suitable for Corn Futures right now, let’s delve into the technical picture: ADX Analysis: Corn Futures’ Daily ADX has been dropping, indicating weakening momentum. This signals a period of consolidation, where price volatility remains low. RSI of ADX: By applying the RSI to the ADX values, we notice that ADX is now oversold, suggesting that momentum could soon pick up. RSI Crossover: The RSI is nearing a crossover above its moving average, confirming that a new impulse in momentum would be in the process of potentially occur. This technical picture suggests the market could stay in a low-volatility phase for now but break out in the near future. Based on this technical setup, the strategy we present is to capitalize on the short-term consolidation while preparing for a potential breakout, using the Reverse Diagonal Iron Condor structure. 3. Strategy Breakdown: Reverse Diagonal Iron Condor The Reverse Diagonal Iron Condor is a unique options structure where you sell longer-term options and buy shorter-term options. This setup generates a negative theta position, meaning time decay works slightly against the trader. However, the strategy compensates for this through positive gamma, which accelerates the delta as the underlying market moves, especially during a breakout. This combination allows the position to profit from a sharp move in either direction, with relatively limited cost. For this trade on Corn Futures (ZCH2025), the structure is as follows: Sell 450 Call (21 Feb 2025), Buy 455 Call (27 Dec 2024): This creates a short diagonal call spread, where the February short call decays slowly due to the longer expiration, and the December long call acts as a short-term hedge against an early rise in prices. Sell 410 Put (21 Feb 2025), Buy 405 Put (27 Dec 2024): Similarly, this forms a short diagonal put spread. The February short put is subject to less time decay, while the December long put protects against a sharp downward move before its expiration. Key Mechanics: Time Decay (Theta): Although the trade has negative theta, the impact of time decay is relatively small because the February options decay slowly due to their longer-term expiration. Gamma and Delta: The positive gamma in this position means that if a breakout occurs before the December expiration, the delta will increase significantly, making the trade more sensitive to price changes. This could more than offset the negative theta, allowing the trade to capture large gains from a significant price move. Objective: The goal is for Corn prices to experience an impulsive move (either up or down) before the December 2024 expiration of the long legs, allowing the positive gamma to boost the position’s delta. If this breakout occurs, the potential profits from the price move will likely surpass the small losses due to time decay. The structure is ideal for markets in consolidation that may be on the verge of a volatility surge, as the falling ADX and oversold RSI suggest. This strategy is particularly well-suited for Corn Futures (ZCH2025), given the current technical setup, where a near-term consolidation phase might be followed by an explosive move in either direction. The success of this trade relies on a timely breakout occurring before the December expiration, after which the position may need adjustment to manage risk. 4. Risk Profile at Initial Setup The initial risk profile for this trade reminds us of an Iron Condor risk profile, with the best case being a range-bound corn market between 410 and 450. Important Consideration: This risk profile does not reflect the final outcome because the trade spans two different options cycles. The December options will expire first, which means adjustments may be necessary after that expiration to maintain protection. Note on Options Simulation Tool: It's important to mention that the options simulation tool provided by TradingView is currently still in its beta stage. While it offers useful insights for analyzing and visualizing options strategies, traders should be aware that certain features may be limited, and results might not always reflect all real-world conditions. For a more comprehensive analysis, it is recommended to complement the simulation with other tools such as the Options Strategy Simulator available in the CME Group website. 5. Optional Trade Management After December Expiration Once the December 2024 long options expire, you will face two possible scenarios. In both cases, managing the February 2025 short options is crucial: o Scenario 1: Corn Prices Remain Range-Bound: If Corn futures continue to trade within the 450-410 range, the December long options will expire worthless. In this case, the strategy shifts to managing the February short options, which will benefit from time decay. Monitor the market closely and consider whether to buy new protection for the remaining February short options. o Scenario 2: Corn Prices Break Out: If Corn futures break above 450 or below 410 prior to the December expiration, the February short options could expose the position to significant risk if we allow them to expire. One potential action is to purchase new long options within the range (for example, buy the 445 call and the 415 put using 21 February 2025 expiration). While many other actions could be valid, a common and probably the simplest approach could be to close all legs in time for a likely profit at this moment. 6. Risk Management Effective risk management is essential in any options strategy, especially one as advanced as a Reverse Diagonal Iron Condor. Below are key points to ensure this trade stays within your risk tolerance: o Position Sizing: Given the complexity of this trade, ensure that the size of your position fits within your overall risk management plan. Avoid over-leveraging, as unexpected price movements can lead to significant losses once the December long options expire. o Monitor Key Levels: Keep an eye on the 450 strike (resistance) and 410 strike (support). If Corn breaks these levels early in the trade, consider closing the position or making adjustments. o Volatility Management: The success of this trade hinges on an increase in market momentum. 7. Conclusion The Reverse Diagonal Iron Condor is an advanced options strategy where the long positions have a shorter expiration than the short positions, creating a negative theta position. Instead of benefiting from time decay as in a traditional Iron Condor, this strategy is designed to take advantage of expected volatility increases over time. By selling longer-term options and buying shorter-term options, traders are positioning themselves for a volatility breakout or significant price movement before the near-term options expire. In this setup, time decay has a limited negative impact on the position, but the key advantage lies in the positive gamma. This means that if a breakout occurs, the position’s delta will accelerate, potentially outpacing the slight negative effect of theta. Traders should closely monitor the December expiration, as the success of the trade hinges on the anticipated large move happening before this date. This structure is particularly well-suited for Corn Futures (ZCH2025), given the falling ADX and RSI, which suggest a potential momentum shift. The strategy is designed to benefit from a significant price move with limited cost, assuming the breakout occurs within the timeframe of the December long options. When charting futures, the data provided could be delayed. Traders working with the ticker symbols discussed in this idea may prefer to use CME Group real-time data plan on TradingView: www.tradingview.com - This consideration is particularly important for shorter-term traders, whereas it may be less critical for those focused on longer-term trading strategies. General Disclaimer: The trade ideas presented herein are solely for illustrative purposes forming a part of a case study intended to demonstrate key principles in risk management within the context of the specific market scenarios discussed. These ideas are not to be interpreted as investment recommendations or financial advice. They do not endorse or promote any specific trading strategies, financial products, or services. The information provided is based on data believed to be reliable; however, its accuracy or completeness cannot be guaranteed. Trading in financial markets involves risks, including the potential loss of principal. Each individual should conduct their own research and consult with professional financial advisors before making any investment decisions. The author or publisher of this content bears no responsibility for any actions taken based on the information provided or for any resultant financial or other losses.
CBOT:ZCH2025Education
by traddictiv
⚖️OPTIONS TRADING: What are the Greeks?The Greeks are a set of mathematical measures used in options trading to assess and quantify various factors that influence the price and behavior of options. 📌 VEGA : Vega is a measure of how much an option's premium will change in response to a 1% change in implied volatility. Implied volatility represents the market's expectation of the underlying security's future movement. When implied volatility is high, options tend to be more expensive, and when it is low, options are cheaper. Vega is particularly influential for options with longer expiration dates, as volatility has a greater impact on their prices. As an option approaches expiration, Vega decreases, while it increases as the underlying security moves closer to the strike price. Essentially, Vega is highest when the option is at-the-money and decreases as it goes out-of-the-money or in-the-money. 📌GAMMA Gamma, represents the rate of change between an option's Delta and the price of the underlying asset. Higher Gamma values indicate that even small price changes in the underlying stock or fund can cause significant changes in the option's Delta. At-the-money options have the highest Gamma because their Deltas are most sensitive to underlying price movements. For instance, if XYZ is priced at $100.00 and a XYZ $100.00 call option is considered at-the-money, any price movement in either direction will push the option into either in-the-money or out-of-the-money territory. This high sensitivity to stock movement is reflected in the option's Gamma, making Gamma higher for at-the-money options. 📌THETA Theta represents the theoretical daily decay of an option's premium, assuming all other factors remain constant. As time passes, options gradually lose value, and this loss is known as time value decay. The decay of time value is more significant as the expiration date approaches, particularly for near-the-money options. Theta does not behave linearly; instead, it accelerates as expiration nears. A higher Theta indicates that the option's value will decay more rapidly over time. Short-dated options, especially those near-the-money, tend to have higher Theta because there is greater urgency for the underlying asset to move in a favorable direction before expiration. Theta is negative for long (purchased) positions and positive for short (sold) positions, regardless of whether the option is a call or a put. 📌RHO Rho measures an option's sensitivity to changes in the risk-free interest rate and is expressed as the amount of money the option will gain or lose with a 1% change in interest rates. Changes in interest rates can affect an option's value because they impact the cost of carrying the position over time. This effect is more significant for longer-term options compared to near-term options. Higher stock prices and longer time until expiration generally lead to greater sensitivity to interest rate changes, resulting in higher absolute Rho values. Rho is positive for long calls (the right to buy) and increases with the stock price. It is negative for long puts (the right to sell) and approaches zero as the stock price increases. Rho is positive for short puts (the obligation to buy) and negative for short calls (the obligation to sell). 📌DELTA Delta is a measure that estimates how much an option's value may change with a $1 increase or decrease in the price of the underlying security. Delta values range from -1 to +1, where 0 indicates minimal movement of the option premium relative to changes in the underlying stock price. Delta is positive for long stocks, long calls, and short puts, which are considered bullish strategies. Conversely, Delta is negative for short stocks, short calls, and long puts, which are bearish strategies. A Delta of +1 is assigned to long stock shares, while a Delta of -1 is assigned to short stock shares. An option's Delta can range from -1 to +1, and the closer it is to +1 or -1, the more sensitive the option premium is to changes in the underlying security. 👤 @QuantVue 📅 Daily Ideas about market update, psychology & indicators ❤️ If you appreciate our work, please like, comment and follow ❤️
Editors' picks
Education
by QuantVue
9
Theta sets up for long day tradesTheta has made a solid push after a decent flush on the 210 min chart. This has big potential to go alot higher from here. But... it has run into some real resistance (pink dashes/black box.) This creates an environment that is conducive to higher than average probabilities for day trades on the long side, in the intermediate term. Now, crypto moves quick... real quick... So, this setup may only be good for today (4-16-21); whereas something like this would last for weeks in days gone by. All the same, Theta will be on he radar for some day trades which we post privately. If you would like to join in on the discussion for our day trades go ahead and hit the follow! Remember though... we trade charts not coins. So if your preference is to argue over which coin is going to moon next... we are probably not the group for you. Blessings
Education
by HumbleFutures
2
Time consideration short-term vs long-term buy call options Hello traders, In my previous post, I wrote about, At the money / In the money / Out of the money call option, basic definitions, and the 6 factors that determine the option pricing. I remind you that options pricing is based on the partial differential equation from the Black–Scholes model, the solutions to this equation are not linear, which means it is hard to visualize how the option price will behave. A short explanation about “time premium” and “intrinsic value” and “premium”. To buy an option you pay a “premium” the price of the option contract. The premium is the combination of time premium and intrinsic value Out of the money and At the money only have time premium. (intrinsic value is zero) At the money options have the most time premium. In the money options have intrinsic value and time premium. The intrinsic value of an In the money call is the amount by which the stock price exceeds the striking price. For example, the strike price of the option $90, the stock price $100, the intrinsic value is 100-90 =$10. To this, we add time premium for this example we assume $1, The Total price of the In the money option, called premium is $11. The Theta Theta is a measure of the time decay of the options. This is the risk measurement of time on the option position. Theta is usually expressed as a negative number, it is expressed as the amount by which the option value will change. For example, an option bought for $7 and have 14 days until expiration, the theta of the option could be (-0.5), which means the option will lose half a dollar per day if all the other variables stay the same. Options trader should know that time is the enemy of the option buyer and a friend to the options seller. (Options selling will be explained in another post) Long-term options (one year for example) are not influenced by time decay in one day’s time. The theta of a long-term option is close to zero. Short-term options, especially At the money options, have the biggest theta because they are the most exposed to time decay (The less time you have, the more rapid you lose time premium). At the money have the most time premium, do not get confused with premium (“time premium” and “intrinsic value”), Out and In the money options have less time premium. The time decay (theta) of options on a very volatile stock will be higher than of options on a low volatility stock. The volatility of options will be explained in another post, but what you should know, the higher the volatility of an option the higher the price is (more “expensive”). The higher the price, the more time premium the option has, therefore more time premium to lose daily, which means those options have higher theta. I want to note again, that the equation and their solutions are not linear, options will lose more of their daily value near expiration. Chart explanation and conclusions: We see two options in TSLA, short-term, and long-term, the faded colors belong to the short-term and the strong colors to the long-term. Differences between the options: the option price, the days to expire, the volatility, and other “greeks” like the delta. The strongest factors, stock price, and the strike price of the options are the same. We can see that the long-term options have a much sharper angle (more flat) than the short-term angle, meaning the time decay of the short options is much greater as we expect. The profit lines (3,2,1) of the long-term options are above the short-term options. The break-even and the loss lines of the short-term options are above the long-term options. If you have questions ask them in the comments.
NASDAQ:TSLAEducation
by ZoharCho
1
Day trading and Scalping Example NIFTY July 8I use multi time frame analysis very heavily. I always establish context for trading before I start the day. For context and levels, please check the following posts prior to July 8 *** Links Below I am always fascinated by day trading - not because of the lure of quick money. But I think it is extremely hard for me. At least it is hard for my personality. It is always said there are two kind of traders 1. Traders who can think very fast 2. Traders who can think very deep I always see myself comfortable in category two - deep thinker. But to put myself out of my own opinion's prison - I day trade. Though day trading is hard, it teaches many things to me as a trader. 1. Emotional Control and Money Management - I don't have time to adjust , reflect back and somehow prove to myself that I am on the right side. I better quickly exit of my positions with great emotional control. 2. Relentless Planning - Since I don't have lot of time, I have to plan insanely - thinking of all possibilities and my actions. 3. NO to laziness - I cant afford to relax during the day session. I need to have extreme clarity of thought throughout the trading session. Now, one may think that all these learning can be from any time frame trading. That's true. But when you have a ticking clock next to you and market presenting you 1 of n possibilities every single candle, that changes you for good. It makes you fast. Then you can adjust to larger trading styles easily. Below is my example live thought log for the day. I escaped the day with approx Rs 34 / lot profit. Not a bad hunt after crazy price movement! ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- NIFTY chart is extremely positive. Market looks prime for 11000, but global clues soft. Typically, such setups if bullish do not give chance to enter, starts with gap up. If there is no gap up it may be contra indication for sideways movement for the day. Since it is Wednesday , 1 day prior to weekly expiry, it is better to sell options and scalp premium. Risk : large volatile movement. Stop Loss, opening ranges of 1 st hr. Close positions starting from 1:30 PM. -------------------------------------------------------------------------------------------------------------------------------------------- 1. Expectation was rally. But flat opening. Global markets are soft. Hence I sold 9300 CALL. Idea is to cash in Theta loss for the day in case of sideways movement. It is a risky trade. 2. Candle at 9.30 starts confirming this movement. Let this movement complete. 3. Any close below Previous day High, position can be added to. 4. As yesterdays high shows support around 10800, 10700 PUT is sold as well. Again Idea is to get benefitted by sideways movement and theta decay. 5. Overall position entry is now 33+30.30 = 63.30 Rs. 6. Since breakout failed, now NIFTY likely to stay in the range. So 10800 CALL sold 68.05 Rs. 7. So far trade is going ok. definitely signs of consolidation. BANK NIFTY broken out, NIFTY lagging. 8. Position 10700/10900 Strangle : 66 Rs (3Rs loss) Position 10800 Call : 74 Rs (6 Rs loss) -------------------------------------------------- 9 Rs Loss 9. Position 10700/10900 Strangle : 65 Rs (2Rs loss) Position 10800 Call : 56 Rs (12 Rs Profit) -------------------------------------------------- 10 Rs Profit Going as expected. On breakout of the opening range Another short added 10800 CALL 56 10. Opening range breakout failed. 10750 PUT sold, Now look for opportunity to reduce position on 10800 CALL as breakout failed. 11. Usually NIFTY may jump around after 1.30. VIX did not decrease so far. So NIFTY players sense uncertainity at these levels. Closed 10800 1/2 position. Position 10700/10900 Strangle : 56 Rs (10Rs Profit) Position 10800 Call *: 62 (6 Rs Loss) Position 10750 Put : 46 (3 Rs Profit) * Position 10800 CALL : (68-61) (7 Rs Profit) -------------------------------------------------- 7 Rs Profit / 7 Rs Booked Profit = 14 Rs 12. The price range is getting tighter. NIFTY advance decline is 25 to 24 Neutral. 13. As Expected move started. How strong the move to be seen. 10800 PUT sold as initial direction of the move crossing the range. VIX started cooling off 14. Break above range is not showing strong follow through so expansion attempt is not rapid. That is a good sign for my trades. Position 10700/10900 Strangle : 50 Rs (13Rs Profit) Position 10800 Call : 74 (18 Rs Loss) Position 10750 Put : 31 (18 Rs Profit) Position 10800 Put : 50 (4 Rs Profit) * Position 10800 CALL : (68-61) (7 Rs Profit) -------------------------------------------------- 17 Rs Profit / 7 Rs Booked Profit = 24 Rs 15. NIFTY is showing many indecisive moves. It is above previous day high. Essentially, the morning down move can be negated and fresh up move possible tomorrow. It is 2.20 PM so 1 hr to go in trading. Priority will be to close short positions first. Then Long ones. Closed 10800 Put : It was latest and more prone to loss. * Position 10800 Put : 49 (5 Rs Profit) 16. NIFTY dipped below Previous day Low. Now NIFTY can again go to 10800 17. Actually large moevement at 2.30 PM. Closed the positions. Final tally is Position 10700/10900 Strangle : (63 - 45)(18 Rs Profit) Position 10800 CALL : (68-61) ( 7 Rs Profit) Position 10800 CALL : (56-55) ( 1 Rs Profit) Position 10750 PUT : (49-46) ( 3 Rs Profit) Position 10800 PUT : (54-49) ( 5 Rs Profit) ------------------------------------------------------ 34 Rs Profit ------------------------------------------------------------------------------------------------------------------------------- Retrospection : -ve's 1. Position of 10800 PUT sell was not a good position to take, it was more like a balancing previous position. Better option would be to just square off 10800 CALL position for loss. 2. Entry for 2nd position on 10800 CALL could have been better. Also it was not correct with original sideways assumption. +ve's 1. Traded as per the plan. 2. I was able to close everything fast enough before the volatile move. Reference Monthly Analysis Weekly Analysis July 7 Log
NSE:NIFTYEducation
by Observe_Think_Act_Think
1
Avoiding #TimeDecay on a Directional Option Trade #NVDA #ThetaHey guys, I have a fun trade going with super low risk, and I am using it to display a strategy I have historically used with great success. It may feel boring, but for those with good risk mgmt this is great to put on. ‘Put’ on :P We are using puts in this trade. I will post a few pretty charts below, but the charts have nothing to do with my trade. This isn’t a technical trade – I am doing it because of global macro news. Haven’t even paid much attention to how they have been doing. Earnings on May 15th were a beat $0.64 beat vs a $0.57 estimate. A 13% surprise for traders. Stock proceeded to drop 16% over 18 days. Then it rallied hard. Now they are forecasting $0.83 – most likely will be a sell off leading up to it. Oh yeah – and we are in a trade war. I rode this stock up. I hope to ride it down a bit. To the ‘Put’ at hand – the trade is gaining slight premium rather than losing it through time decay. Everyone is afraid of directional trades in options because of this, and I get it – time decay sucks. That is why we put on the boring delta neutrals to sell volatility. For my trade I did a long put vertical. Purchased Aug 16th 165 Puts Sold Aug 16th 160 Puts 14 Day expiration and high delta of -11.04 – so this trade favors the market going down – because for my trade I picked a vertical Put DEBIT spread. Has a theta of .875 (14days) – if you go 49 days out we are looking at much less, because we are so far out .231. However – once again you will not be paying out theta if you were to hold this trade, it would be rising, and rising in your favor. This is because of the selling the 160 Put. If I were to just want to make a short position, I could purchase the 165 put outright and I will have a short directional bias ---however--- that theta with 14 day expiration will have a theta decay of -23.31. It is because of selling the 160 Put which yields a theta premium of 24.186 that we do not have to pay out any time decay. So in this trade, we do have defined gains (a max on gains of $248) which stinks. But then again when are gains ever unlimited? Max loss is 252. Probability of profit is 54%. #MATH
NASDAQ:NVDAEducation
by ZenMode
1