At tastylive, we are option premium sellers and the expiration we like to sell is the one closest to 45 days to expiration (DTE). What do we do though if the choice is between 30 days and 60 days? Sometimes there will be no weekly options or the liquidity will be poor and we have to make a choice. A table and a graph were used to show how using one expiration or the other benefitted from some of the option Greeks, like Theta (time decay), Vega and Gamma. There was no clear winner. The 30 DTE options benefitted from Theta but there was increased Gamma risk in the at-the-money strikes.
We turned to our research team for help. They devised a study in the SPY (S&P 500 ETF) using data from 2005 to the present. We sold the 1 Standard Deviation (SD) Strangles with expirations of either 30 days or 60 days. There were around 1700 occurrences. We then compared the 30 DTE Strangles to the 60 DTE Strangles both when carrying the position to expiration and also when managing winners at 50% of max profit if possible.
A table of the results comparing 30 DTE Strangles to 60 DTE Strangles held to expiration was displayed. The table included the average credit received, average P/L per day, average P/L per trade, win rate and largest loss. The table showed that 30 DTE had a higher P/L per day and a smaller loss, but the results did not show a clear winner. A second results table comparing 30 DTE Strangles to 60 DTE Strangles managed at 50% of max profit. Again there was no significant difference and 45 DTE appeared to be the optimal time as it had the benefits without the drawbacks. Tom and Tony mentioned that as traders they will always default to the shorter time frame if given no other choice as, among other things, liquidity is better in the front months.
Watch this segment of Market Measures with Tom Sosnoff and Tony Battista for the valuable takeaways and results from our study comparing short Strangles with 30 DTE or 60 DTE to see the detailed results and learn from Tom and Tony’s insights as to which is the better choice.
This video and its content are provided solely by tastylive, Inc. (“tastylive”) and are for informational and educational purposes only. tastylive was previously known as tastytrade, Inc. (“tastytrade”). This video and its content were created prior to the legal name change of tastylive. As a result, this video may reference tastytrade, its prior legal name.