Capturing Theta

Trading Strategy to profit from Options Theta Decay

 

Entering a Theta Positive Position:

 

 

Theta

Position

Direction

Long Put

-

Short Put

+

Long Call

-

Short Call

+


As we know, theta is in our favor when we are short an option. To maximize our theta profits, we would enter two positions, a short put and a short call. This position is known as a Short Straddle.

The graph above illustrates the profit or loss of a Short Straddle. The maximum profit potential is achieved if the market stays at our strike price. As the market moves away from our strike price, we begin to lose money on the options position.

A Short Straddle is the core position of the Theta Plus strategy. Simply enter an at-the-money* Short Straddle. The strike price is then used as a “Pivot Point”, which leads us to Chapter 3.

* at-the-money means that your strike price is equivalent to the current market price

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