How to change the permalink option to post name on theme activation?

The flush rewrite rules to be considered while when custom posts are generated.

More info here
https://codex.wordpress.org/Function_Reference/flush_rewrite_rules

This worked for me as when my theme is activated every thing works file 

/* Flush rewrite rules for custom post types. */
add_action( 'after_switch_theme', 'flush_rewrite_rules' );

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