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IT'S DEJA-VU ALL OVER AGAIN... -Yogi Berra After writing the piece on hedging theta, I realized that there is more that can be - and more importantly should be - covered.  So here comes part two... hopefully, it's better than most sequels. First, here's a link to the original... http://tancockstradingblog.blogspot.com/2015/08/hedging-theta-decay.html Anytime you are long an option you are also long volatility; regardless of whether it's a call or a put.  As I've written before, being long volatility automatically makes you short theta... or you could even say that you're short time as the value of the option has an inverse relationship to time... but let's not get too philosophical. In the previous piece, I wrote about one strategy that can be used to hedge short-term theta decay... the vertical bull-put or bear-call spread.  However, especially in relation to the optimized positive convexity strategy, there is another strategy worth exploring... the butte...

THE BEST LAID PLANS OF MICE AND MEN OFTEN GO AWRY... -Robert Burns, 'To a Mouse' 1785 The last few trades I've detailed on this blog have utilized options as the return drivers and linear equity as the overlay protection.  This transformation was brought about by a seemingly simple question of how to increase efficiency.  However, I am now faced with a new challenge as a result of being short the market and - now - also short theta. So what happens if my best laid plans for a technical market correction go awry?  If prices move against me, my positions are protected by equity exposure which will hedge the loss on the options, so I'm good there.  But what happens if equity prices don't move?  Even if equity prices stand still, time most certainly does not.  That's when time becomes your biggest enemy. THETA - EXPLAINED & VISUALIZED... Theta is the price an option holder pays to own an option every day... if there is no change is any of the other pricing...