Market Measures - July 6, 2021 - What Is the Tie Between IV and Theta?

published 3 weeks ago by tastytrade, Inc.

On average, 30∆ strangles have roughly 2x the theta of a 10∆ strangle and roughly 1.5x the theta of a 20∆ strangle. Theta and IV scale is 1:1, meaning that a certain % increase in IV will equate to the same % increase in theta. In 2008 and 2020 (when IV was at its high), we could lock in 5x the theta compared to long term averages. Currently, with Friday’s close of the VIX at 15, we lock in just 75% of theta’s long term average because IV is 75% of its long term average.

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