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Editor’s note: the silly post title isn’t LZ’s fault. It’s Tim’s.
Few are looking for this one, but if the yen breaks lower, then I think we’re weeks at most away from a major depreciation in the Chinese yuan. Remember the market plunge of August 2015? Similar conditions are in place with reversal in commodities, Fed tightening (escalation from 2015 when Fed had flat balance sheet and no rate hikes), U.S. dollar rally and disastrous economic policy in China.
Preface from Tim: Beloved Sloper Buccaneer was kind enough to answer my “call for content” during my most desperate hour (that is, since I’m traveling) and submitted a huge post which I’ve broken into several parts, not just because it’s so danged big, but also to stretch out the content for my own purposes. Thank you, Bucc!Part 1 is hereand Part 2 can be read here.
The most important aspect of Theta to remember is that it assumes IV & price movement are held constant. Markets move every second, so it is unrealistic to expect them to be frozen. We can’t look at our options and expect the value to decrease by Theta every single day. While Theta will come out of the option, price movement & IV will change the value as well. As long as we’re on the right side of the coin (positive Theta), we can rest assured that our option’s extrinsic value will get lower and lower as we reach expiration, which is one of the keys to success for an option seller.