9d • General discussion
The "linear" theta line is a lie
I ran every strike through Black-Scholes this weekend. The output surprised me ($100 underlying, 20% IV, 4% rates):
- ATM theta at 30 DTE: $4.36/day per contract
- ATM theta at 1 DTE: $21.43/day per contract
ATM decay accelerates into expiration. But OTM does the opposite.
5% OTM theta peaks at 21 DTE, then collapses, 10% OTM theta is essentially gone by 14 DTE. The closer you get to expiration, the slower OTM premium decays.
The reason is gamma. Theta doesn't have its own engine. It borrows gamma's. Near expiration, gamma concentrates almost entirely at the money. OTM strikes lose gamma, so they lose theta too.
Your OTM short that feels safe at 21 DTE has already peaked. Holding it to expiration isn't collecting more decay. It's carrying pennies in front of a steamroller.
Theta is not magic income. It is rent for sitting on gamma risk.
1
0 comments
The "linear" theta line is a lie
powered by
skool.com/option4all-2121
For new & growing traders. 🎓 Learn low-risk, high-return option systems & trade confidently with real mentorship. 🚀
Suggested communities
Powered by