Market Measures - June 20, 2025 - Market Measure: Understanding When Theta Turns Against Option Sellers

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Hosts Mike and Nick explored complex theta behavior in defined-risk strategies, explaining how iron condors maintain positive theta only when the underlying stays between short strikes. They demonstrated through 45-day analysis that $1-wide iron condors have extremely narrow positive theta bands and become "Greek-less," while $5-wide spreads offer significantly wider theta ranges and better management flexibility. The key insight was that credit spreads experience negative theta when completely in-the-money because long options have more extrinsic value than shorts, explaining why rolling in-the-money spreads requires paying a debit and why wider spreads (versus multiple narrow ones) provide superior risk-adjusted returns.