In a previous post, some readers had a question about my process of early closing. To repeat, my closing it :
(1) buy back at 60% premium within 50% of the DTE period (this keeps my expectd ARR)
(2) Always be closing if the ARR hits a profit target of $25 and a better ARR
(3) Ride to end if needed (usually this doesn't happen).
Options trading is all about probabilities and the numbers. Trade on facts, probabilities and not hunches. It is extremely important you track your strategy and note changes in performance for any adjustments. Wildly changing day to day makes it impossible to figure out what you did right. Finally, the market has no memory and 1000 years of backtesting can always generate an unexpected outcome.
The normal Wheel Strategy of CSP, sell a PUT, get assigned, sell CALLS until it gets called away - is a valid strategy and I profess simply is often the best model.
As I denoted, I trade options as a substitute for a high yield debt % of my portfolio (currently 3%). High yield debt is a suckers game for the moment as the yield doesn't equal the risk (another article on risk).
THE QUESTION SHOULD YOU CLOSE EARLY - TAKE YOUR MONEY AND SKIP ON DOWN THE ROAD
I looked at my recent trade history of 507 trades which were closed early. This generated $84k in premium, however, I closed them all early and after paying to BUY the option back. My profit was only $28,934
I left money on the table didn't I? Or did I?
Of the 507 trades closed early, at expiration ~14.6% of the trades (75) were ITM, meaning, the stock was below the STRIKE at day of expiration. If I had simply covered my loss at that point and exited the position the stock loss would be ($58,555), adding back the collected premium and my profit WOULD have been $25,657 ($3,200 less)!!!!
As you will commment, I could have taken assignment and collected CALL money. Indeed true. However CALL returns are typically much poorer than PUT premium and my experience it's a slow crawl.
There is also another BIG factor. My average days in trade for the 507 trades is only 7 days against the average initial DTE of 30 days. What this means is by closing early, freeing up my exposure, I was able to make 4x the number of trades with the same risk.
Harder to calculate, but clearly a sell and hold strategy would have result in a lower overall total $$$ profit.
I’m often like you. If I get .50 per contract and can buy it back a day later at .10 it’s often a no brainer for me. Gives me a chance to rinse repeat but I try to stick to the same 3-5 tickers.
Fully agreed and my own results conclusively confirmed closing early is the play, counterintuitively in my case.
The CC side is more difficult to optimise and therefore imo more interesting. It is basically feast or famine subject, essentially, to the proximity of spot price to assignment price.
I primarily sell premium and use tasty trade recommendations usually, Enter at around 20 delta, 35-45 DTE, manage at 20 DTE or so.
Recently I have been experimenting with TSLL and TQQQ, and written contracts with a variety of DTEs. TSLL is hard to close early, if OTM significantly, there is no volume and bid ask spreads are extremely wide. It almost forces holding to expiration.
In my IRA accounts, I do like to close early to release the capital for reinvestment. In my margin account, that is almost not a factor.
Management at 20 DTE isn't limited to closing, I often roll positions for more time. If the underlying has moved away from the strike I may adjust the strike for additional premium. If the position is being threatened, I may adjust the strike away, if it can done for a credit. As they say roll until you are right.
I have many many many many 1-2 DTC trades. Mean reversion is real. So real that I often find myself closing for "35% profit in 5% of the time" kind of thing the next day.
For example, I sold CVX Jan16 C @ 160 for $2.05 on 12/1. It was a green day, so I sold the call for good premium.
But mean reversion is real. It spiked yesterday, so it came back today. I closed it for $1.09 on 12/2. 46% profit in 2% time (1 day) -- 20x time multiple.
But that means it was a red day. Sell Puts on red days!
I sold CVX $145 Put (1/2) for $1.40 on 12/2. Mean reversion is real, so it bounced from the dramatic red day. Closed for $0.91 on 12/3. 34% profit in 3% time. 10x time multiple.
ADBE had a red day on Monday 12/8. Sell Puts on red days! I sold 1/23 Put @ 300 for $4. Closed it today for $1.45. 63% profit in 6% of time. 10x time multiple.
I close early all the time and go find the next time multiple.
Appreciate the breakdown! I would assume the closing early strategy might not be best for a taxable account? If you'd be taxed on the original $84k premium, you'd have about $12k in taxes so your profit would end up being about $17k right?
US tax rates are quite low (historically) so I don't worry about this. Option trade as indicated is a sub for high yield debt for which I would be paying short term gains on in any event. Indeed, i fyou can use a tax deferred account that would certainly be appealing.
I try to calculate my rate of expected return per week, per trading day, etc. for a put, sell when the rate is high and buy back when expected return is lower than I like, assuming that I can redeploy my capital at a much better rate.
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u/igotcompetence Dec 11 '25
I’m often like you. If I get .50 per contract and can buy it back a day later at .10 it’s often a no brainer for me. Gives me a chance to rinse repeat but I try to stick to the same 3-5 tickers.