Market Movements

^{*Weekly Return is calculated as market open of the previous Wednesday, to market close this Tuesday (yesterday); Current Level is Tuesday’s (yesterday’s) close.}

Weekly Rollout

The market tiptoed higher to start the week, with the Dow and S&P 500 inching upward while traders kept one eye on Nvidia’s looming earnings and the other on a Fed under fire. Powell’s Jackson Hole remarks prompted many major brokerages to suddenly warm up to a September rate cut. Political drama didn’t help calm any nerves, as Trump moves to fire Fed Governor Lisa Cook, rattling confidence in central bank independence. This contributed to the dollar sliding and Treasury yields lowering as investors priced in more aggressive easing ahead.

Meanwhile, a milestone quietly slipped by on Wall Street: there are now more ETFs trading in the U.S. than individual stocks, giving investors a buffet so wide it borders on overwhelming. Add in a tumbling dollar, tariffs stirring in the background, and questions over who’s really steering the Fed ship, and you’ve got a market balancing act for the books.

“Good-To-Know’s”

To illustrate this difference, we can compare two scenarios for the ownership of the same stock. In Scenario 1, we will assume an investment pays us 10% per year as a dividend, which is not reinvested. This would be the case for simple interest. In Scenario 2, we are going to also assume a 10% gain per year, but as capital appreciation. This utilizes the power of compounding.

With simple interest, the growth is steady and predictable. There is $10 added each year— no surprises. Compound interest, on the other hand, snowballs because the gain adds to the base. Our interest earns interest. Let’s go!

Let’s Compare the Two…

As illustrated, compounding isn’t just a financial buzzword. It’s a force multiplier. And this is only over 7 years. The earlier and longer you allow your returns to compound, the bigger the payoff becomes compared to the linear growth (simple interest). This is why patience and time in the market (not timing the market) are so emphasized in the world of personal finance.

Quote(s) I Like

Thought Throttle

I think it is important to touch on the namesake of the newsletter—Theta. It’s the “greek” that factors in and reveals the effect of time. It tells us how much of an option’s premium is eroded with each day as we near expiration.

Put plainly, Theta shows how much money leaks off of your options premium every single day. For option sellers, that “leak” is profit. It’s a force working in your favor, whether the stock moves or not. It is one of the characteristics of options that yields profit in sideways movements.

This is the reason theta is at the heart of essentially all option-selling strategies. It isn’t flashy and doesn’t rely on timing the next big move. Time simply does the heavy lifting.

But What Does Theta Actually Represent?

Theta is expressed as a dollar amount per contract, per day. If an option has a theta of –.02, that means it loses about $2 in value per contract each day. When you’re selling options, that $2 decay is your friend. If you were to “Buy-to-Close” the position, that is $2 less you would have to pay to close this position.

What’s important to understand is that Theta isn’t constant throughout the life of the contract. It accelerates the closer you get to expiration. Early on, time decay is relatively slow, ramping up quickly as expiration nears.

Think about it: the difference between 181 days till expiration (DTE) and 180 DTE is very minimal. The difference between 4 DTE and 3 DTE, however, is comparatively a much greater disparity. Theta takes this into consideration.

Theta is also shaped by factors like volatility and strike selection. Options with higher implied volatility naturally have more premium (and more Theta) baked in, though they also carry more price risk. Additionally, further out-of-the-money strikes have a reduced Theta, but they provide a wider margin of safety. Like all things, there is a balance.

Why Focus on Selling?

Consistency is king in investing. For most of us, it’s not the occasional home run that builds wealth—it is the steady, incremental growth from small wins that stack up over time. Selling options harnesses Theta to give us that consistency. Each day that ticks by erodes premium, and that erosion becomes our income.

Consistency can also lead to better returns. This is due to volatility drag. To illustrate this, consider two portfolios with the same average return of 2% per month¹ . One grows at a steady 2% every month. The other swings with five months of 5% gains, only to be gutted by –13% drawdowns in month 6 and month 12.

On paper, they both “average” 2%. But the compounding tells a different story. The steady portfolio ends the year at $126.82, while the volatile portfolio returns less at just $123.29. Same monthly average, very different outcome. That’s the hidden cost of inconsistency.

The lesson is evident—inconsistency can be expensive. Big losses set you back further than big wins push you forward. And not just the math hurts. It takes a psychological toll watching gains evaporate. There is an opportunity cost of sidelined capital. Not to mention the difficulty of sticking to a strategy when volatility whipsaws your account.

Consistency avoids those pitfalls by keeping the needle moving in the right direction month after month.

That’s where Theta comes in. Selling options leans into consistency because time is always decaying, whether the stock rips, dips, or drifts. Each day that passes is a little push toward profit, a steady tailwind at your back.

Buyers need the market to not only move, but move quickly to outrun decay. Not the case for sellers.

Option sellers don’t need to predict every twist in the market. We just need to stop fighting time and start using it to our advantage.

^{1. The average refers to monthly returns using the simple arithmetic mean. Scenario 1 calculated as (2% x 12)/12 = 2%. Scenario 2 calculated as ((5%*10)-(13%*2))/12 = 2%. Yes, the compounded or geometric mean is different, but that is the point being made.}

Trade Mechanics

In this example, let’s take a closer look at how theta plays into returns by comparing two cash-secured puts on Baidu (BIDU).

If you are unsure what a Cash-Secured Put (CSP) is, check out our previous edition:

One CSP expires in 24 days (September 19, 2025), and the other has 52 DTE (October 17, 2025). Both are between 20 and 25 delta (~23), but the premiums, returns, and effective cost bases tell slightly different stories.

Here’s How They Line Up:

Looking at Theta, the September put decays at about $4.71 per day per contract, while the October put sheds closer to $3.12. For sellers, that difference matters—the September contract pays out faster, while October spreads the premium over more time.

The shorter-dated September option has a higher annualized return. That’s partially due to its higher Theta, meaning the premium “bleeds” faster each day as expiration approaches—along with other factors like Implied Volatility, strike differences, etc.

By contrast, the October put has a slightly lower annualized return but provides a deeper discount entry if assigned, thanks to the lower strike.

This illustrates the trade-off. Neither is “better” in every case—it depends on whether you value efficiency or safety in the particular trade.

Things to Keep in Mind Before Entering CSPs

• Assignment Risk: These are American options, which means assignment can happen at any time before expiration, especially if the stock trades near the strike.

• Capital Lockup: Each CSP ties up the strike × 100 in cash until the trade is closed or expires. Make sure that money isn’t needed elsewhere.

• Liquidity & Spreads: Check the bid–ask spread before entering—wide spreads eat into returns.

• Volatility Influence: Premiums rise with volatility (IV). A spike in BIDU’s volatility could lift option values even if the stock price doesn’t move.

• Opportunity Cost: Shorter-dated options free up capital faster if you want to redeploy, while longer-dated ones keep collateral tied up.

• Position Sizing: Never sell more CSPs than you’re comfortable holding as stock. If assigned, you’re buying 100 shares per contract.

This is for educational purposes only—not a trade recommendation. Remember to always do your own due diligence and consult a financial advisor before making investment decisions.

Throttle Q&A

Why Does Theta Accelerate as Expiration Gets Closer?

As discussed above, theta isn’t constant. It speeds up the closer you get to expiration. That’s because time value erodes fastest when there’s less time left for the option to be “right.” This is why many option traders, trying to be as theta-efficient as they can be, shoot for 30-45 DTE, ideally balancing premium and time decay.

Is Theta Always Good for Option Sellers?

Mostly, but not always. Yes, Theta means time is working in your favor, but if the stock moves sharply against your strike, price risk can easily overwhelm the trade. Think of Theta as a tailwind—it pushes you toward where you are heading, good or bad. Metaphorically speaking, the “theta-tailwind” could push you to paradise or into a hurricane. That’s why strike selection and position sizing are just as important as collecting daily decay.

“I Have a Small Account; How Can I Get Started?”

1. Build capital patiently. Give yourself enough cushion to sell options responsibly and strategically. Building big things takes time.

2. Focus on consistency. Stack small wins instead of chasing big paydays. Remember that it is a marathon, not a sprint. Let time and compounding do their thing.

3. Keep learning. The more you understand the mechanics, the more disciplined you’ll become in your efforts.

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Disclaimer

The information provided in this newsletter is sourced from reliable channels; however, we cannot guarantee its accuracy. The opinions expressed in this newsletter are solely those of the editorial team, contributors, or third-party sources and may change without prior notice. These views do not necessarily reflect those of the firm as a whole. The content may become outdated, and there is no obligation to update it.

This newsletter is for informational purposes only and does not constitute personal investment advice. It is not intended to address your specific financial situation and should not be construed as legal, financial, tax, or accounting advice, or as a recommendation to buy, sell, or hold any securities. No recommendation is made regarding the suitability of any investment for a particular individual or group. Past performance is not indicative of future results.

Options come with inherent risks. We strongly advise you to consult with a financial advisor before making any investment decisions, including determining whether any proposed investment aligns with your personal financial needs.