This segment of Best Practices analyzes when it’s best to enter and exit a trade.
When trading options, it is important to look at the number of days to expiration (DTE). Typically, we enter a trade with 45 DTE for it allows us to capture theta decay, and as sellers of option premium, we want large amounts of theta decay.
Based on our study of a 16 delta strangle, we found that entering a trade at 45 DTE and exiting at 50% profit or 21 DTE had the largest daily P/L.
Furthermore, when looking at exiting a 16 delta, 45 DTE strangle, exiting the trade at 21 DTE performed better than managing at 50% profit or expiration. Therefore, the results show that entering trades at 45 DTE and exiting trades at 21 DTE perform best.