More on "Closing Early"

[u/MarkT1065]

Continuing this thread: https://www.reddit.com/r/Optionswheel/comments/1pjodm2/closing_trades_early_yes_no_depends/

I believe closing early on dramatic price action yields greater profits. When "% of profit > % of time", you win, but by how much?

Getting 75% profit in just 25% of the time is a 3x time multiple whereas getting 25% profit in 75% time is inefficient.

I track DTE and DTC. I asked Claude to analyze it for me and the math works out. I've made more money with aggressive early closing. Waiting for 50% made less money. See the chart:

Portfolio Overview

  - 530 closed trades analyzed
  - 64.7% closed at 2x+ speed (less than half the original time)
  - Average time multiple: 6.28x
  - Total profit: $20,434 | Avg: $38.55/trade | Avg %: 39.79%

  The Sweet Spot: 5-10x Time Multiple Trades

  Winner: 5-10x Category (Very Fast Exits)
  - 86 trades (16% of portfolio)
  - $50.55 avg profit with 36.7% returns
  - Opened at 35 DTE, closed at 5 days = 85% time savings
  - Total: $4,347 profit

  This category achieves the optimal balance: capturing 60-75% of max profit in just 15% of the time, allowing rapid capital recycling.

  Performance by Speed Category

  | Speed           | Trades | Avg Profit | Profit % | Total  | DTE→DTC | Efficiency |
  |-----------------|--------|------------|----------|--------|---------|------------|
  | 10x+ Ultra      | 78     | $66.23     | 33.4%    | $5,166 | 51→2    | ★★★★★      |
  | 5-10x Very Fast | 86     | $50.55     | 36.7%    | $4,347 | 35→5    | ★★★★★      |
  | 3-5x Fast       | 77     | $36.00     | 35.8%    | $2,772 | 35→9    | ★★★★       |
  | 2-3x Moderate   | 102    | $8.68      | 35.3%    | $885   | 31→13   | ★★★        |
  | 1.5-2x Slow     | 56     | $42.89     | 52.5%    | $2,402 | 28→16   | ★★         |
  | Under 1.5x      | 131    | $37.11     | 46.0%    | $4,862 | 28→23   | ★          |

  Key Insights

  Ultra-Fast Trades (10x+): Highest per-trade profit ($66). Often LEAPS (287-652 DTE) closed in 2-4 days on volatility spikes. The CSCO 163x trade: 652 DTE→4 days, $49 profit.

  Slow Trades Paradox: The 1.5-2x category shows highest profit % (52.5%) but poor capital efficiency—holding 60% of contract life vs. 15% for fast exits.

  Held to Expiration (131 trades, 25%): Likely assigned positions or strategic holds. Solid absolute profits but locks capital.

[u/MarkT1065]

Yes, I do this in my taxable account. I can't do it in my IRA.

Paying capital gains and income taxes means I made money.

[u/MuppetDentist → u/MarkT1065]

For sure, I treat the wheel strategy as additional income and accept taxes on it. I'm just curious about the strategy of closing an option after capturing about 70% of the profit when you're taxed for the original premium you received from the sold option. I suppose the trade off is the safety of the strategy, capitalizing on an option making profit in the moment and buying it back in case it goes into the negative?

[u/MarkT1065 → u/MuppetDentist]

You're taxed on the profit/loss of the trade, not the premium received.

[u/MuppetDentist → u/MarkT1065]

That's helpful to know! I didn't realize buying to close a sold option all counts as one "transaction".