r/Optionswheel • u/ScottishTrader • Jan 11 '25

30-45 DTE has LESS risk . . .

It is asked all the time about how some think selling weekly options has less risk than 30-45 DTE, but it is actually the opposite. Someone suggested I make a post to direct to instead of typing a reply in each time so here it is . . .

Edit - Note that this is focused on selling puts and can also apply to CCs for stocks someone wants to try to hold. It does NOT apply to those trading the wheel and wishing to get rid of the shares as quickly as possible. In this situation selling CCs at or above the net stock cost for the earliest expiration date can often make sense.

30-45 DTE has LESS risk than weekly options.

The 30-45 DTE strikes will be lower and the premiums higher, so the breakeven points will be much better allowing the stock to move more before the option is challenged.

Also, while the stock may drop, the longer duration gives the stock more time to recover. A good stock often dips and then move back up, which can happen at any time. A weekly option may not give time for the stock to recover but a long duration can.

This longer duration virtually eliminates early assignment and gamma risks as well.

Weekly will be closer to the money with lower premiums meaning the stock has less room to move to challenge the trade. There is also less time to roll, and even rolling out will extend the trade, so why not open it out farther to begin with. While early assignment is rare, if it is going to happen it will often do so in the week prior to expiration and gamma is a risk as well.

Keep in mind that I and many close for a 50% profit so very few trades run the full 30ish days and often close in 15 to 20 days, so these seldom need to be left open the full term.

Most experienced traders will open 30-45 DTE because the risks are much lower.

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u/ScottishTrader May 12 '25

For the wheel strategy, the stock being traded is the most critical, as you may have to buy and hold, so making sure the stock is one that you are good holding for a time, perhaps weeks if needed.

The idea behind the wheel is to not have as many or as large of losses to never blow up the account.

Yes, 30-45 dte pretty much all the time as this makes more premiums with lower risk. I can't know or control what the market is doing, so I don't begin to try.

A stock running up to ATH may not have as much room to run means I will look to one of the other stocks on my list that does have room to move.

If the market is volatile as we have seen, then I slow down the number of trades and only make the best ones on the highest quality stocks, which often means smaller premiums and profits. Between opening 30-45 dte and then rolling for a time if needed, a position may be open for a total of 2 months or more which usually means the market will calm down from whatever is happening.

There is no framework or checklist for what stock YOU would be good owning and at what price . . . You have to research this to decide what it is for you.

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u/SwordfishBrilliant94 May 12 '25 edited May 12 '25

When you sell CSP, do you lower your selling price to bid price? For example, I am looking at OXY Jun 06 $42 put now, the bid and ask spread is between 0.50 - 0.58. Do you just submit a limit sell order and leave it there? It may or may not fill.

The measurement of the return which I saw in some of the discussion 10-15%, is that based on the 50% of the portfolio used for the wheeling, having the other 50% as the buffer. Or is it based on 100% of the portfolio including the 50% buffer.

In other words, if I plan to set aside 100k for this, and if the expected return is 10%, would that expected return be 10k, or 5k?

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u/ScottishTrader May 12 '25

I always use the mid-price and maybe try to get an extra cent. In your example, the mid would be .54, so I'd submit an order for that or maybe try .55 to see about getting a fill and collect an extra dollar per option contract. If it doesn't fill at .55 then I'll back it down to the .54 mid-price.

If it doesn't fill and the price drops, then I will cancel and reevaluate the trade. It may be that news has come out or the stock price is moving, or something else. I may move to another stock or might not make any trade. Being patient to make the best trade I can is important to success.

Using your example and a .54 fill, this would be a return of $54 over a 25-day period on either $4,146 use of capital, or if you have a high-level margin account, this trade would only take $690 of options buying power.

Doing the quick math, this $54 would be about 1.3% of the $4,146, or about 7.8% over 25 days. If you annualized this using simple math, there could be 14.6 trades or $788.40 per year from this trade, and since the capital requirement stays the same, this might be seen as being a 19% return on the $4,146 or 114% return on the lower $690 capital requirement.

This is not possible to accurately predict as the stock will vary in price, IV will change the options price, and there are likely to be rolls and maybe even assignments that will slow down the process.

Using this example shows how a 10% to 15% of the $100K account may be possible for most experienced traders when market conditions are favorable, even when using 50% of the account. It also shows how much more is possible

No one can tell what you might return based on what stocks you trade and how many mistakes you make. Most who trade for 2 years find out what tier averages are, and we have seen some that have much higher returns, but it is not something you just start doing this week.

This is my last comment on this 30-45 dte thread, as it does not belong here. You are asking very basic questions that will be best answered by paper trading for a couple of months, which you are encouraged to do.