Best Practices

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Trade Entry and Exit

Best Practices

Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

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.

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