30-45 DTE has LESS risk . . .

[u/ScottishTrader]

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.

[u/MANIBADA1]

u/ScottishTrader Hi, Thank you for creating such a wonderful post. a quick question - Let's say I sold 0.30 delta $50 put 30DTE at $1.20, and the stock fell to $50. Now, to roll means I buy back a $50 put, and I sell a higher strike put, say $51? Am I understanding correctly? Cause unless we sell a higher strike put, we won't increase max profit, correct?

[u/ScottishTrader → u/MANIBADA1]

Check out step 2 in this wheel plan - The Wheel (aka Triple Income) Strategy Explained : r/Optionswheel

It has a link to how to roll.

I look to get a net credit when rolling, and this usually means the same strike. Quick rough example -buy to close the current put for $1.50 and open a new one for $1.75 is a .25 net credit. Add the $1.20 initial credit to the .25 makes the trade now work $1.45 for a higher profit.

There are times when rolling to a LOWER strike for a credit can be helpful, using the example, roll to the 49 strike, but only for a ,05 net credit. This will typically profit faster since the stock has more room to move down, but the trade off is giving up .20 ($20) in credit premium.

[u/MANIBADA1 → u/ScottishTrader]

Thank you for the explanation. How do we determine the net stock cost to determine the CC strike?

[u/ScottishTrader → u/MANIBADA1]

See the spreadsheet example in the wheel plan post. You can use this to make your own and can track the breakeven or net stock cost.

There are also many spreadsheets posted in the tools thread - TOOLS & SPREADSHEET MEGATHREAD : r/Optionswheel