Please interpret this theta plot

[smile]

This plot is from the june 20, 2014 Tasty trade on youtube found here:

http://www.youtube.com/watch?v=zwslkD6WWI8

Here is the plot as an attachment...

I do not know the specifics on how they obtained this plot.
Maybe some other Tasty trader can help me out there.

The dotted vertical line at about 45 days provides excellent decay for option sellers and is why Tasty trade recommends selling at about 45 day to exp.

ATM flattens about day 23, 70% OTM about 25 days to expiration, 90% OTM about 38 D to exp.

90% otm theta starts increasing again at 20 D, while 70% otm and atm start increasing again at about day 7.

Notice the very sharp increase in theta for all at about 7 days to expiration.

Please provide your interpretation and how you would use this info. in your options trading

 

[m.m]

You can see that the OTM options have the highest theta decay the last seven days before expiration, while ATM options decay more constantly.

Edit: This means e.g. you have to hold OTM credit spreads until expiration to make maximum profit from theta decay.

 

[jamesbp]

Please provide your interpretation and how you would use this info. in your options trading

More useless analysis from TastyTrade ....

After 30 years as an Option Trader, Sosnoff has just discovered that ATM / OTM options over different durations decay at different rates ....

The question is not how we would use it, but why do they not use it for trading ... it appears to be clear from their analysis that ATM options decay more in both absolute and relative terms from 45 DTE .... YET they always find some excuse to avoid selling ATM premium .... which invalidates much of their own research ...

 

[smile]

Selling at 60 days to exp. looks like it would also provide excellent theta decay for 70% and 90% otm

 

[smile]

If you have what you think is a better theta plot in any way please post it here.
Thanks.

 

[xandman]

Attached. Nice and simple.

Anybody got a collection of greeks/spreads going to expiration?

 

[Brighton]

Attached. Nice and simple.

Anybody got a collection of greeks/spreads going to expiration?

I assume in the case of the ATM and the OTM graphs, that the underlying and the implied volatility are held constant, but what what about the OTM graph - what percent OTM is it?

 

[xandman]

It's from the livevol blog. The author said around 10-ish.

This actually made me rethink Ron99's strategy at BMT.

 

[Brighton]

It's from the livevol blog. The author said around 10-ish.

Thanks. I missed that (I think it's the Feb 28 post). There is a follow-up article on March 7 and it contains a link to http://dtr-trading.blogspot.com/, which looks interesting.

 

[smile]

excellent article on theta decay of far otm options vs. atm options and their corresponding very different decay plots:

http://livevol.blogspot.com/2014/02/so-youre-premium-seller-huh-just-love.html