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Fundamentals 1: What is Theta?
In this article we will explore an important concept in options trading that can greatly impact your investment decisions: theta, also known as time decay. Don’t worry if you’re new to this topic – we’ll break it down into simple terms. Understanding theta is essential for navigating the options market effectively, so let’s dive in!…
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Fundamentals 2: Interpretation of the Theta value
Previously the principle of theta is explained (see article: Fundamentals 1: What is Theta). In this article the sign and magnitude of theta is explained. The Sign and Numerical Value of Theta When it comes to interpretation of the theta value two key aspects are important: the sign and the magnitude of its numerical value.…
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Fundamentals 3: Factors that Influence Theta
In our previous articles we discussed the concept of time decay or theta in options and its impact on option prices. The relation between time and theta was briefly highlighted in the first article. Besides time more factors influence the value of theta. Now, let’s delve deeper into the factors that influence the theta value…
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Fundamentals 4: Mathematical Formulation
In this article the mathematical formulation of Theta explained. Almost any broker calculates the daily theta value automatically, so there is no practical need to apply the function below yourself. However having understanding of the formula might help in understanding the dynamics of theta. Fear not, as we’ll break down the equation into simpler terms…
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Fundamentals 5: Theta Time Curve explained
In this article the behavior of theta decay over time and how it varies for different options is explained. Understanding the dynamics of the theta time curve can provide valuable insights to help us make informed decisions when trading options. So, let’s dive right in! The Theta Time Curve and extrinsic value Theta decay, often…
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Fundamentals 6: Cash Secured Puts
In this article, we’ll delve into the fascinating realm of cash-secured put options. Don’t worry if you’re new to the concept of options or feel intimidated by the jargon – we’ll break it down for you in simple terms. By the end, you’ll have a solid understanding of cash-secured put options and how they can…
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Fundamentals 7: Covered Calls
A covered call option is a popular strategy that combines stock ownership with options trading. In simple terms, it involves selling a call option on a stock you already own. By doing so, you generate income, known as the premium, from the option buyer. In return, you agree to sell your shares at a predetermined…
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Strategies 2: The CBOE S&P 500 PutWrite Index
In this article the CBOE S&P 500 PutWrite Index is explained and what value the index might bring to you. In previous article the most basic theta strategy: option writing is explained. The CBOE S&P 500 PutWrite Index is an essential benchmark for those interested in employing put writing as a strategy. Now, let’s discover…
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Strategy 1: Most basic selling strategy
In this article is one of the simplest yet effective strategies explained to harness the power of theta: selling options. We will explore the basics of selling put and call options, provide examples of premium earning opportunities, and shed light on the associated risks. But before we dive in, if you’re unfamiliar with cash-secured puts…