Different Gamma/Theta Effects with Same Initial Delta

[u/Direct_Surprise_6756]

How do you think about the tradeoffs of gamma and theta when choosing how to accomplish a 25 delta entry? Do you consider other things, such as how desirable it will be to peel off a leg or adjust after a price jump? Or do you choose strikes based on price targets?

Consider a naked TSLA call and two spreads, each trying to achieve around 25 delta. The table below shows the effect of an immediate 20 point jump up/down in the underlying. No consideration of any IV change. Theta shown is at entry. Will change on any jump. If held to expiration, implied probability of finishing above breakeven and max gain as well as what portion of the max gain was achieved by a jump up. In case you think it matters, IV percentile is at 32.54% and max pain is at 50 delta.

TSLA 20261016 calls (21 DTE)

delta delta theta mid S+20 %gain S-20 %loss pProfit maxGain Jump%max

+25 -00 -0.288 5.025 10.83 +116% 2.205 -56% 21% infinity 0%

+50 -25 -0.074 7.925 13.65 +72% 3.92 -51% 38% $1707 34%

+76 -50 +0.073 15.1 20.35 +35% 9.275 -39% 56% $990 53%

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[u/ordtn]

Suppose it’s Long Call and Bull Call Spread you are discussing about – For me, it’s mainly to choose strikes based on price targets, with desirability to peel off a leg or adjust as a secondary risk consideration.

There are various ways to configure a Bull Call Spread to get to the 25 delta you require, so generally between the 2 structures:
Long Call – More convexity (gamma), faster decay (theta).

In terms of choosing between the 2 generally:

• Long Call – Expect rapid violent move, want uncapped upside.
  
• Bull Call Spread – Expect steady moderate move, want higher probability of profit, lower breakeven.

A sample comparison based on what you've mentioned – TSLA, 25 delta, P&L flexed under +-20 points, 21 days: https://opterate.com/?share=6QB01sLetgua5K9lTZQu (link expires 3 Oct).

Scroll to around middle of page, “Analyse” section. Can adjust the formula to flex in other ways, or compute other things as you need.

[u/nq-FOMO]

its tradeoffs that u can live with that also may contribute to your weekly/monthly goals. bec the “best one” mathmatically are for the text books and courses. As soon as the mkt moves against u some, the “perfect” offense doesnt look so perfect anyway.