Time Decay
Posts about theta, time value, and how time decay shapes trade structure choice.
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The fly trap
Call butterflies look incredible on paper. Spend $300, make $1,200. That's 4 to 1. Here's what the payoff diagram doesn't show you.
The fly held you hostage
Butterfly spreads look incredible on paper. 10-to-1 payoff. Defined risk. Tight structure. Here's the part that stings.
The better-looking trade is sometimes the worse trade
Remember this... the payoff diagram is a photograph of the last day. It shows you what happens if you hold to expiry, if price lands in the right spot, if everything plays out along one specific path.
Stop buying calls on the bounce
You see a selloff. You think it's overdone. So you buy calls. Then theta eats you alive because vol is through the roof.
A lesson on time value...
Yesterday a subscriber asked a question that sounds like it’s about execution, but isn’t. He’s been long deep ITM GDX LEAP calls for a long time. When price moved, he tried to roll them up.