Theta - The King of #Option Greeks (#IMHO)


Theta, or the option greek that measures the decay of an option over time is very important. In fact, it’s probably the most important greek. Once you understand it, it turns amateurs into professionals, beginners into intermediate or advanced traders; and quite possibly can help you become an independent, self employed trader.

Most amateurs start buying long options. Of course, they’ve learned about Theta and “Option Decay”, however, the mere fact they are buying long options indicates they don’t understand the power of theta.

If you have “Positive Theta” (See just below the Logo?), you are bringing in an income each day, regardless of weekends, holidays, etc. if your Theta shows positive on the monitor tab of your Think-Or-Swim (TOS) Platform. How do you get “Positive Theta”? Simple. You need to sell more options than you buy. That’s it.

Why not sell options? If you are a car salesman, you sell cars. You rarely profit from buying cars, right? What about a car collector, they make money buying cars, don’t they? Think about it…..No. They make money if they sell the rare collectible for more than they bought it, right?

Essentially, you sell options that you intend to buy back cheaper. This can be done regardless of your market direction opinion (always just an opinion). You can also set up the trades where it doesn’t matter which way the market goes. In fact, it may be the best way to trade.

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