Thanks for your answer. Please, allow me a second question on Vega. You suggest to diversify strategy types combining bullput spreads, CSP and IC with short-dated earnings trades. For earnings, you mean Calendar Spreads, right?
Do you prefer short-dated Calendars and focused on earnings or a more generic 30/60 Calendar on SPX? I'm asking because I'm assuming that earning trades require more management and attention, while a longer date Calendar will be more stable. Am I missing something?
If so, would you prefer having a 30/60 calendar always open as part of the portolio or only enter the trade when market enters in backwardation?
As for timing - I don’t keep a calendar trade on at all times, but I’ll often initiate one when VIX is low and I want to add Vega, or when I see signs of backwardation, as you mentioned
I really like the approach you describe, looking for global portfolio management and systematic trading. Please, I would love to read further posts like this, if you are so kind to share.
In some of your posts, you suggest having a ratio delta/theta of 0.5 for your trades. Is it advisable for portfolio too? How do you relate this 0.5 ratio with the delta dollars you mention?
And what would be a good value for your portfolio vega in your proposal, so you can sleep well even when volatility increases drastically and your cash secured puts and bull puts suffer.
Really glad you enjoyed the piece. I’ll definitely be sharing more posts in this vein going forward.
Great questions too.
The delta/theta ratio of 0.5 is something I often use at the position level to ensure a trade has a favorable decay-to-directional-risk profile. In the context of an overall portfolio, I tend to anchor more around Delta Dollars and total portfolio Theta independently rather than trying to maintain a fixed ratio between the two.
That said, if your overall portfolio is running with a delta/theta ratio of around 0.5, it likely reflects a balanced income engine—not too directional, with solid Theta yield. But I wouldn’t rigidly target that as a rule. I’d focus on:
Keeping total Delta Dollars inside a 1:1 range relative to account size (e.g., ±$100K for a $100K portfolio)
Targeting daily Theta between 0.06% and 0.10% of capital
Monitoring Vega and margin exposure separately
On portfolio Vega—great question. There’s no universal “safe” number, but most of my core trade are negative Vega so I try to think in terms of shock scenarios—how much would the portfolio draw down if VIX spiked by 10 points overnight?
Ultimately, you want enough Vega exposure to benefit from time decay, but not so much that you’re vulnerable to a major vol spike.
Using defined-risk trades, avoiding short-dated gamma traps, and maintaining adequate cash or hedges can all help you sleep better when vol spikes.
Thanks again for the great engagement—keep the questions coming!
Hi Gavin,
Thanks for your answer. Please, allow me a second question on Vega. You suggest to diversify strategy types combining bullput spreads, CSP and IC with short-dated earnings trades. For earnings, you mean Calendar Spreads, right?
Do you prefer short-dated Calendars and focused on earnings or a more generic 30/60 Calendar on SPX? I'm asking because I'm assuming that earning trades require more management and attention, while a longer date Calendar will be more stable. Am I missing something?
If so, would you prefer having a 30/60 calendar always open as part of the portolio or only enter the trade when market enters in backwardation?
Thanks again.
Generic SPX Calendars are good, as are earnings trades, but I prefer Diagonals for earnings. E.g. https://optionstradingiq.com/double-diagonal-pre-earnings-trade/
As for timing - I don’t keep a calendar trade on at all times, but I’ll often initiate one when VIX is low and I want to add Vega, or when I see signs of backwardation, as you mentioned
Hi Gavin,
I really like the approach you describe, looking for global portfolio management and systematic trading. Please, I would love to read further posts like this, if you are so kind to share.
In some of your posts, you suggest having a ratio delta/theta of 0.5 for your trades. Is it advisable for portfolio too? How do you relate this 0.5 ratio with the delta dollars you mention?
And what would be a good value for your portfolio vega in your proposal, so you can sleep well even when volatility increases drastically and your cash secured puts and bull puts suffer.
Thank you very much.
Curro
Hi Curro,
Really glad you enjoyed the piece. I’ll definitely be sharing more posts in this vein going forward.
Great questions too.
The delta/theta ratio of 0.5 is something I often use at the position level to ensure a trade has a favorable decay-to-directional-risk profile. In the context of an overall portfolio, I tend to anchor more around Delta Dollars and total portfolio Theta independently rather than trying to maintain a fixed ratio between the two.
That said, if your overall portfolio is running with a delta/theta ratio of around 0.5, it likely reflects a balanced income engine—not too directional, with solid Theta yield. But I wouldn’t rigidly target that as a rule. I’d focus on:
Keeping total Delta Dollars inside a 1:1 range relative to account size (e.g., ±$100K for a $100K portfolio)
Targeting daily Theta between 0.06% and 0.10% of capital
Monitoring Vega and margin exposure separately
On portfolio Vega—great question. There’s no universal “safe” number, but most of my core trade are negative Vega so I try to think in terms of shock scenarios—how much would the portfolio draw down if VIX spiked by 10 points overnight?
Ultimately, you want enough Vega exposure to benefit from time decay, but not so much that you’re vulnerable to a major vol spike.
Using defined-risk trades, avoiding short-dated gamma traps, and maintaining adequate cash or hedges can all help you sleep better when vol spikes.
Thanks again for the great engagement—keep the questions coming!
Best,
Gavin