How Does a Trader Benefit from a Positive Theta Portfolio?
A trader with a positive Theta portfolio benefits from the passage of time. This is achieved by being a net seller of options, collecting premium that decays over time.
The portfolio gains value daily, assuming all other factors remain constant. This strategy is often employed by those who believe implied volatility is too high.
Glossar
Implied Volatility
Expectation ⎊ This value represents the market's consensus forecast of future asset price fluctuation, derived by reversing option pricing models using current market premiums.
Sudden Market Move
Event ⎊ A sudden market move refers to an abrupt and significant price change that deviates sharply from recent price action and expectations.
Positive Theta Portfolio
Characteristic ⎊ A Positive Theta Portfolio is an options book deliberately constructed to possess a net positive Theta value, indicating that the portfolio gains value daily due to the time decay of the options held within it.
Portfolio Gains
Realization ⎊ ⎊ Portfolio gains, within cryptocurrency, options, and derivatives, represent the net profit or loss accrued from the disposition of assets held within a trading account or investment portfolio, calculated as the difference between the sale price and the initial acquisition cost, inclusive of any associated transaction fees and commissions.
Positive Theta
Metric ⎊ Positive Theta (θ) is a key options Greek metric that quantifies the rate at which the theoretical value of an options portfolio increases as time passes, assuming all other market variables remain constant.
Positive Theta Strategy
Decay ⎊ A positive theta strategy is an options trading approach designed to profit from the time decay of options contracts.