For an option seller, hoping to collect theta decay, he is up against gamma risk. The positive theta decay can be entirely wiped out if the underlying makes a move against him. This is because of gamma. Keeping this in mind, while trying to sell ATM option, what is a good relationship between theta and gamma that the trader can use as a guideline? e.g, for a 50$ stock, if the 50 call has a gamma of 0.45, then theta should be at least 20 cents, with 20 days to go( monthly option) So some kind of a ratio between theta/gamma that traders are willing to accept as a minimum.
All the option theory in the World isn't going to help you if the stock moves far enough against you to create a loss. This math formula might help: Short ATM options + 20 days to expiry = Recipe for disaster
Under standard BS assumptions, theta/gamma is approximately constant regardless of strike or time to expiration. A 1-year option decays at the same rate per unit of gamma as a 1-week option.
Looking forward to more posts from MD99. Victor123 I think you may be too far down the rabbit hole. Making a derivative of a derivative..so on and so forth. Though there are specific greeks to express all these nuances. Mostly useful for people whose accounts have an incredible number of digits. You frame your trade according to the curve differently according to the play you identify. You exit/hedge when the gamma will increments your delta all too easily and makes unpalatable demands on your hedging frequency/costs. The IV ranges you are willing to trade is something you can easily define. There is the too capital intensive range to make a profit and the dangerously crazy range. Theta should be an afterthought. You can think gamma/delta ratios, but that is another rabbit hole. Your forecast of realized volatility is really the key..