DTE Capture
The DTE Capture Strategy exploits option time premium decay as the option approaches expiration to generate trading revenue. Option pricing consists of intrinsic value and time premium. Out-of-the-money options consist wholly of time premium, which diminishes to zero as the expiration approaches. The maximum time driven depreciation rate occurs in the last hours of trading leading up to expiration. The first order factor of an option is the intrinsic value, which is the difference between the underlying and strike price. However, we exploit the second order factor of an option, the time premium decay. This instance of the DTE Capture Strategy collects daily and weekly out of the money option time premium on the S&P 500 e-mini contract (ES) and on gold options (GC). In periods of increased volatility, DTE Capture may purchase options to capitalize on their rising premiums or accept delivery of underlying contracts. The strategy uses disciplined margin management and 24 by 7 position monitoring. A variety of trading techniques are incorporated as defensive actions to include closing out losing trades in a timely manner at manageable price points.