Does a Delta-Neutral Position Have a Positive or Negative Theta?
A typical delta-neutral position created by a market maker who is net short options (selling options to collect premium) will have a positive theta, meaning they profit as time passes. Conversely, a delta-neutral position created by being net long options will have a negative theta, meaning the position loses value as time passes due to time decay.
Glossar
Net Long Options
Position ⎊ A net long options position is defined by a portfolio structure where the aggregate quantity of purchased option contracts surpasses the quantity of sold contracts, resulting in a positive net exposure to both gamma and vega.
Net Short Options
Definition ⎊ Net short options defines a portfolio state where the aggregate number of option contracts sold surpasses the number of contracts purchased, leading to a composite negative gamma and negative vega profile.