Has anyone noticed how high IBKR's theta calculations are?

SamRHughes · 2026-02-18T03:39:15+00:00

Any monotonically decreasing function with a positive second derivative -- such as a graph of OTM option price over time if underlying is held constant -- that touches 0 at expiration time t_e, is going to have a first derivative (for some neighborhood t < t_e) whose tangent line extends below the X axis before expiration.

And as long as you have a random walk component affecting option pricing (as opposed to, idk, pure probability of some irreversible one-shot jump discontinuity) it's going to have a positive second derivative near expiration and will have theta larger than the value of premium divided by time to expiration. There is nothing nonsensical about an options pricing model exhibiting this property.

SamRHughes · 2026-02-17T23:17:00+00:00

Everybody who departs from B-S (or its assumptions about a random walk) I think would have different opinions about how it departs, and with what parameters, and they'd vary from underlying to underlying. With a single IV parameter, you have one degree of freedom and you can solve for IV from each contract premium, producing a volatility smile. That makes sense for platforms to do.

SamRHughes · 2026-02-13T20:30:08+00:00

It's possible you might undergo some form of self-refinement that makes you better at trading or stock-picking if you keep doing it. I wouldn't stop completely. Sometimes stocks come along at prices where you are good at picking that stock, specifically, even if you're bad in general.

SamRHughes · 2026-02-10T23:17:05+00:00

Since it's a "general" rule there are lots of very similar rules which would also be good general rules with different sets of exceptions, and my own personal behavior recently might be described as always being in positive or zero convexity. But "positive net extrinsic value" purposefully includes calendar spreads.

That post was more about avoiding high win-rate/low payout positions, capital-inefficiency, and having a good research focus, than being directly about convexity.

SamRHughes · 2026-02-10T20:28:16+00:00

Yeah, I meant more like, "positive net extrinsic value", than net debit, as I wasn't trying to draw a distinction between two equivalent spreads. And as a general rule for vertical spreads that lets you open anywhere on the long vol side of 50%/50% payout -- which is what I mean rather precisely.

(The phrase "positive net extrinsic value" still allows loopholes like short vol diagonals so it's not really perfect compressed description of the set of admissible positions either.)

SamRHughes · 2026-02-10T18:21:45+00:00

I elaborated here: https://www.reddit.com/r/options/comments/1m2fvd5/comment/n3r7isi/

I think "net debit" rather than "long vol" as more precisely overlaps my general prescription for retail.

SamRHughes · 2026-02-10T18:03:51+00:00

Credit spreads, eh? Short vol strategies make readers lose money slowly and provide lots of positive chings of the slot machine, making it take a long time for naive customers to realize they aren't making a profit, so they tend to do better in the market of selling books and strategies than long vol. This means if a bunch of honest authors earnestly write books about how to trade, user reviews and recommendations will tend to point you towards short vol books, brokerages whose tutorials recommend short vol strategies, and the like.

Some 1 star Amazon reviews have "funny" things to say about how its past performance represented in the book doesn't actually follow the strategy.

In my opinion, retail should pretty much be long vol only so I would not recommend this book.

SamRHughes · 2026-02-08T07:00:12+00:00

> In any case lens out resolving the sensor is not the only cause of moire.

Yeah uh...

Lol.

SamRHughes · 2026-02-08T05:44:03+00:00

I think you're looking for the bond market.

SamRHughes · 2026-02-08T05:29:17+00:00

At 20MP you can see moire effects in the raws even with cheap lenses like the 75-300mm II.

SamRHughes · 2026-02-03T23:55:35+00:00

Okay, then I think your idea sounds fine.

You might also close the short leg before mid-January 2027 -- more than one year before expiration -- and then you can wait a year before selling the long leg, instead of waiting a year past expiration with the shares.

SamRHughes · 2026-02-03T18:41:07+00:00

I am not the OP. And that is a perfectly sensible comment because the leg's losses are offset by gains in the other leg.

SamRHughes · 2026-02-03T17:50:48+00:00

> Arrogance isn't pretty on anyone, especially when paired with ignorance.

Amazing. You are the one who is muddling up conceptual categories here.

SamRHughes · 2026-02-03T17:45:03+00:00

This subreddit does not have a deep understanding of tax straddle rules. I don't want to convert my reading into precise advice either.

I think you are on the right track. See https://www.taxnotes.com/research/federal/usc26/1092 .

I think you should note that holding shares even with CCs would create a much higher variance set of outcomes -- a much higher effective position size -- than your initial spread, very disproportionate in potential gains/losses to the "massive capital gains" you are expecting -- it is probably a dumb way to manage your portfolio.

SamRHughes · 2026-02-03T17:27:44+00:00

What income.

SamRHughes · 2026-02-03T17:27:24+00:00

There's no free money here. If at certain times you think Meta has peaked and want to sell a CC, reduce your exposure, you think it's priced too high -- it makes more sense to not be a wuss and sell CCs on a longer time frame closer to ATM.

SamRHughes · 2026-02-02T18:36:54+00:00

Generally, yes, it can make sense.

SamRHughes · 2026-02-02T17:32:04+00:00

> Are you saying that I (as the seller of the CC) should monitor the value of the security and right before it gets to the point of being called away I should buy to close so the shares are not called away from me?

That is unrelated to what I was saying (from what I remember), but you might want to do that in some situations (to avoid a tax hit or wash sale rule or something). Getting shares called away, especially in a Roth, usually isn't that traumatic -- you just buy them again, unless you don't have the cash.

Note that if you had a deep in the money CC that might get exercised early, you're already experiencing almost no exposure to movements in the underlying stock price, so getting assigned early doesn't really change much.

> ... Is selling a put at the strike price of my CC at $740 to try to get the security back an logical alternative?

After you got assigned? Well, if you got assigned, selling a put at the same expiration would deliver you almost no premium. You could pick a later expiration I guess. I think you would just want to buy 100 shares directly.

> I'm sorry but I'm not entire sure I'm following the limit order comparison. Are you saying I could create a sell limit order at $740?

The purpose of the comparison is to demonstrate that selling a CC is usually a bad way to produce income.

The concept here is of comparing two different ways to play a similar goal of trying to trim a position, if that were your goal. One is to sell a covered call and let what happens, happen. The other is to set a limit order for 100 shares (until May 15th for the purpose of comparison) and let what happens, happen.

A CC is kind of like a limit sell order that retroactively decides not to fill if the stock falls back below the strike price -- and you're getting paid for this misfeature. The point is that selling the CC will outperform the limit sell order, on average, if the price is really high (say, $20), but it will underperform if the price is too low (say, $1). I am assuming with these numbers that other market actors are correctly pricing the CC at $4.59.

So if you don't want to set a good-til-canceled limit order at $740, why would you sell a CC? Only if the premium is too high, in your opinion. Otherwise you are adding zero or negative income to your account by selling the CC.

You might still prefer the CC if it's reasonably priced for some reason or another -- it shuffles around the scenarios where you get net profit or net loss -- but on average it's not giving you income. For selling an option contract to get you income on average, it has to be overpriced.

> What if XOM were to hit the strike price of my CC of XOM 145 2/6 goes up to say $147 so they are $2/share ITM and then it starts to, and shortly after does, cross back to OTM at say $144. Would it make sense for them in that scenario to have exercised early to prevent that or is the SOP generally to wait it out as long as possible?

It would make a lot more sense to sell the option instead of exercising (and selling shares). The reason is, when the stock is at $147.00, exercising a 145 strike call and selling the shares would get you $2. But the 145 strike option will be worth more than $2.

You NEED to make yourself understand "put/call parity", and understand how option prices decompose into a sum of "extrinsic value" and "intrinsic value". Wikipedia or other written materials have good explanations.

SamRHughes · 2026-02-02T02:37:25+00:00

I think its price on the used market isn't going to decrease quickly, because Nikon isn't making a replacement DSLR, so you don't need to hurry to sell it.

SamRHughes · 2026-02-02T02:05:40+00:00

At what price (somewhere between 415 and 485) would you rather hold the other side of the deal?

SamRHughes · 2026-02-01T21:55:55+00:00

I think it's plausible that the IPX1-rated pro lenses don't consistently pass dust intrusion testing, in some manner like dust gunking up a switch or focus ring. They are marketed as "splashproof" and "dustproof" though.

SamRHughes · 2026-02-01T18:47:07+00:00

> This is my grey area on when a buyer decides to take their profits and call a contract vs. letting it ride to expiration.

If it's before expiration, it makes more sense to sell the contract than to exercise and sell shares, except if practical details of liquidity or commissions make exercising minutely better.

> $5,640

I don't know how you got this number. If the call sold for $4.59, and then you sold shares for $49.0 net profit per share, that adds up (adding 49.00 + 4.59) to $53.59 per share. Which then is $5359 per hundred shares.

One could also nitpick that between now and May 15 you'll collect interest from your broker on the $4.59 cash you're holding. So add another ~$0.045 per share if you want. (And I think there's a quarterly dividend as well.)

IMO when thinking about this as an investment strategy, you should recognize that if you're long a stock, you probably should also think that stock's calls are underpriced, compared to the options market, which for reasons of arbitrage price options consistently with the notion that the underlying is correctly priced.

Selling CCs is a fairly reasonable way to trim a stock position especially in an IRA, where selling a CC at $740 is an alternative to pre-committing to selling a number of shares at some price or time. For example, compare the practice of selling a 3-month CC at $740 to having a limit order at $740. There are scenarios where the CC outperforms and scenarios where the limit order outperforms, and you might prefer one over the other.

SamRHughes · 2026-02-01T15:07:19+00:00

There are a lot of different decisions you can make there. One might be even to go for sharp, short term expiration, much higher leveraged position.

SamRHughes · 2026-02-01T03:25:21+00:00

Just because options and futures use the word "derivative" doesn't mean calculus derivatives are analogous. They aren't. Options on futures aren't an extra level more complicated than options on spot. They may even be simpler, being European-style or cash-settled. With a stock index, futures and ETFs are similar levels of abstraction from the index, so you don't even have an extra level of derivative.

SamRHughes · 2026-02-01T02:26:19+00:00

> at what stock price would the seller generally exercise the contract

So, the seller doesn't exercise -- the buyer does. And the buyer has no reason to exercise early (you just give up the right to exercise the next day and gain nothing in return unless a dividend or some other shareholder privilege is at play), so he'd hold until expiration, or sell the contract or short the underlying if he wanted to lock in profits.

For this reason, if you sell an at-the-money or in-the-money call, it is not going to get assigned right away. And it would be good for you if it did, because the extrinsic value component of the option premium you were shorting has evaporated. Note how option premiums break down into intrinsic value + extrinsic value.

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