Trading Theta is hard. The part I hate is overcoming the vig, spread, juice (spread between the bid/ask, plus commissions) whatever you call it.

And we have to pay the vig on both sides, getting in and getting out. The best part about my trading system, is that a lot of expirations expire worthless. So when I put on a position, I am immediately down. IB prices you position as the midpoint between the bid/ask. And remember that you should not pay a ticket charge.

So when I enter a trade, I have to make sure that I can capture enough theta to make the vig. I don’t even know if you can say ‘capture theta’, but I think everyone knows what I mean. I actually calc how much to make the vig on each trade. I don’t use this calculation for my trades, but it makes me feel better. I like to know, how long before a trade ( given stable IV and the price not going against me ) will start giving me returns.

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This entry was posted on Friday, June 22nd, 2007 at 12:16 pm and is filed under Option Trading.