Market Measures

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Premium Decay - Varying Deltas

Market Measures

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In previous studies, we’ve demonstrated that when you control for Delta, the actual Theta decay curve is very close to the theoretical Theta decay curve. This piece explores that relationship further by testing the actual theta decay for a variety of Delta puts.

Results:

When we control for underlying price movement, the actual premium decay curve very closely matches the theoretical premium decay curve; further OTM options decay faster than ATM options, leveling off prior to the expiration date. However, on a nominal basis, at-the-money options collect more premium per day, hence why we manage strangles at 50% and straddles at 25% max profit.

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