Abstract

Previous research has shown sector-conditional asymmetry in implied volatility levels and in option returns. However, no prior work has parameterised that asymmetry at the effective-theta layer in a form that fires a non-discretionary rule trigger. This study supplies the parameterisation, its formulation, the first observation, and the data evidence. An effective theta is defined as Θe=αs,r⋅ΘBS, where ΘBS is the standard Black–Scholes (BS) theta and αs,r is a sector- and regime-conditional scaling factor. A SIMDEC decomposition is used to filter the input space and to determine the corner where α matters most. The framework is a bounded retrieval-and-deterministic compute system. The instruments are retrieved from cached market data and the learned layer’s outputs are constrained to that admissible set. Therefore, by construction, it cannot confabulate a fictitious or out-of-bounds instrument and the generative-class hallucination failure mode cannot occur. This concerns the groundedness and bounds of every output and is distinct from the accuracy of the regime and quality labels. SIMDEC supplies the joint-state filtering partition and, together with the Sobol variance decomposition, an explainability and attribution layer in which every position-level evaluation maps to an interpretable joint-state bin and a variance-share attribution. A “first observation” arising from a three-position long-call cohort traversing terminal decay is deployed using eight intraday states tracked on the trajectory at primary-source resolution and illustrates the relationship of the α parameterisation to existing market conditions. To examine the effectiveness of the approach, a SIMDEC dataset from the same deployment supplies population-level support across 12 sectors and a three-tier quality stratification. The dataset is the output of the THETA AI/ML pipeline—a multi-architecture deep-learning inference system that treats SIMDEC joint-state partitioning and Sobol variance decomposition as complementary interpretability inputs, with the regime classifier carrying the labels and the composite quality scorer carrying the stratification. The PC-based, token-free analytical procedure for regulated decision-making settings, together with an illustrative example of the asymmetry in the effective-theta provide a “next level” contribution to traditional option methodology.

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