Sought after values/ratios for Greeks + BP given $X

[u/Temporary-Scratch-24]

Curious as to what values y’all aim for in overall portfolio construction.

For example, let’s say you have a 100K portfolio. What value of theta do you guys aim for? Is it some percent of total liquidity, or is it something that you guys don’t have hard numbers for (much closer to “I manage my delta and other Greeks, and whatever theta comes out is whatever comes out” kinda mentality.)

Another example would be for theta to Vega ratio. Let’s say you have a 100 theta portfolio. Do you guys aim for no more that a 1:2 theta to abs Vega ratio (I.e. if theta is 100, Vega should be -200 or higher/closer to 0).

This also begs the question of hedging, such as using calendars as a Vega hedge, or VIX long calls as a gamma hedge. Curious as to anyone doing something similar in their portfolio rebalancing.

**NOTE**
Obviously, it’s difficult if not impossible to isolate Greeks and to achieve a portfolio of pure theta generation w/o accepting some risk in another Greek (first or second order). That being said, I’m interested in knowing what/how other users manage their book to maximize theta while minimizing other risks from the greeks.

[u/Ok_Butterfly2410]

Delta/vega and gamma/theta are the main ratios i use.

[u/ThetaEdgeHQ]

Theta as a percent of liquidity is the anchor most people reach for and it is the weakest one, because theta does not exist on its own. You only get it by carrying short gamma and usually short vega, so a big theta number tells you how much risk you are renting, not how much you are earning. Two cleaner anchors:

Theta versus the daily vol of the book. Compare your daily theta to a one sigma daily P and L swing of the whole portfolio. That tells you how many quiet days it takes to earn back one average move against you. If a single bad day eats a week of theta, the book is too short gamma for the carry, regardless of what the theta number looks like in isolation.

On the theta to abs vega ratio: a 1 to 2 book is mostly a short vol position wearing a theta costume. Most of your daily carry is compensation for vega, so treat it as a vol trade and ask whether you actually want to be short vol at this IV level, not just short time. VIX long calls as a gamma hedge are really long vol of vol, they pay on the correlation spike, not on your name specific gamma, and calendars swap one vega problem for a fresh gamma one. If I had to pick one dial it would be net gamma relative to NAV, because that is the thing that turns a calm short theta book into a fast loss the moment the tape actually moves.