How Does the Decay of Theta Affect the Profitability of a Market Maker's Position? ▴ Learn

How Does the Decay of Theta Affect the Profitability of a Market Maker’s Position?

Theta is typically negative for long option positions (losing value daily) and positive for short option positions (gaining value daily). Market makers are generally net short options (selling options), so they benefit from the decay of Theta, which is a source of profit.

The faster the decay (closer to expiration), the higher the daily profit.

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