Theta Shield | Flux Charts💎 GENERAL OVERVIEW
Introducing our new Theta Shield indicator! Theta is the options risk factor concerning how fast there is a decline in the value of an option over time. This indicator aims to help the trader avoid sideways market phases in the current ticker, to minimize the risk of theta decay. For more information, please check the "How Does It Work" section.
Features of the new Theta Shield Indicator :
Foresight Of Accumulation Zones
Decrease Risk Of Theta Decay
Clear "Valid" & "Non-Valid" Signals
Validness Trail
Alerts
📌 HOW DOES IT WORK ?
In options trading, theta is defined as the rate of decline in the value of an option due to the passage of time. Traders want to avoid this kind of decay in the value of an option. One of the best ways to avoid it is not holding an option contract when the market is going sideways. This indicator uses a stochastic oscillator to try to get a foresight of sideways markets, warning the trader to not hold an option contract while the price is in a range.
The indicator starts by calculating the stochastic value using close, high & low prices of the candlesticks. Then a stoch threshold & a theta length are determined depending on the option contract type defined by the user in the settings of the indicator. Each candlestick that falls above or below the stoch threshold value is counted, and a "theta valid strength" is calculated using the counted candlesticks, which has a value between -100 & 100. Here is the formula of the "theta valid strength" value :
f_lin_interpolate(float x0, float x1, float y0, float y1, float x) =>
y0 + (x - x0) * (y1 - y0) / (x1 - x0)
thetaValid = Total Candlesticks That Fall Above & Below The Threshold In Last "Theta Length" bars.
thetaValidStrength = f_lin_interpolate(0, thetaLength, -100, 100, thetaValid)
Then a trail is rendered, and "Valid" & "Non-Valid" signals are given using this freshly calculated strength value. Valid means that the indicator currently thinks that no accumulation will happen in the near future, so the option positions in the current ticker are protected from the theta decay. Non-Valid means that the indicator thinks the ticker has entered the accumulation phase, so holding any option position is not recommended, as they may be affected by the theta decay.
🚩 UNIQUENESS
This indicator offers a unique way to avoid theta decay in options trading. It uses a stochastic oscillator and thresholds to calculate a "theta strength" value, which is used for rendering validness signals and a trail. Traders can follow the valid & non-valid signals when deciding to hold their options position or not. The indicator also has an alerts feature, so you can get notified when a ticker is about to enter a range, or when it's about to get out of it.
⚙️ SETTINGS
1. General Configuration
Contract Type -> You can set the option contract type here. The indicator will adjust itself to get a better foresight depending on the contract length.
2. Style
Fill Validness -> Will render a trail based on "theta strength" value.
