Point well taken, Maverick. Thanks for your comments. I actually do like maintaining a daily theta goal, but that's just me. Have a great weekend! Bobby
Bobby, theta does not exist. It's a 2nd derivative. It's a calculus equation. A pde to be more exact (partial differential equation).
I don't mean to be pedantic, but please correct me if I am wrong. I thought theta is a first order Greek.
Maverick I read in another thread you said selling ATM Straddles is a lot better strategy than selling DOTM options. For a novice Option Trader trying to sell premium, what rules would you apply to trading the ATM Straddles.
It's not better. It's safer in that you are selling peak gamma. In other words, as the market moves against you,it's doing this with a declining gamma curve which is exactly what you want vs the inverse which is the market moving against you with gamma exploding in your face. There is no "edge" to selling ATM premium, it's just easier to manage and hedge.
Sorry, I am confused and lost. Can you please elaborate on the 2nd and 3rd order effects of theta? If the explanation is too tedious, please give me pointers to academic literature or papers. I shall do the reading myself. Thank you in advance.
Sure, theta is not static, it changes relative to other things other then time. For example, theta changes with regards to vol, price and even skew. ALL derivatives has 2nd and 3rd order effects which is EXACTLY why retail traders should not rely on them. A pde is simply a measurement of a variable holding ALL ELSE CONSTANT. That does not exist in the real world. ALL other parts are moving and are not held constant which is why technically you need to understand 2nd and 3rd order effects. Want a book? Fine, you can pick up a copy of "Dynamic Hedging" by Taleb.