Our research tells us that 45 days to expiration (DTE) is the ideal time frame in which to sell premium but sometimes that isn't an “option” so we ran a study comparing 30 DTE and 60 DTE. The results are significant and meaningful for all premium sellers.
Our research has shown that 45 days to expiration (DTE) is the ideal time in which to sell premium but what do we do when there isn’t an expiration that fits? Obviously, we could look for a different underlying or wait but since we believe in selling high IVR we sometimes need to act when the volatility is there to sell. So do we go for fewer days or more?
A study was conducted in the SPY from 2005 to present. We sold 1 standard deviation strangles (84% OTM) the Monday following expiration and compared 30 days to expiration (30 DTE) to 60 days to expiration (60 DTE). After one trade expired, the next was placed the following Monday using the same DTE.
A table of both the 30 DTE and 60 DTE short strangles were displayed. The table included the total P/L, average P/L and percentage of profitable trades at expiration. A second table of both the 30 DTE and 60 DTE short strangles were displayed. This table showed the average P/L per day, average credit and biggest loss.
Watch this segment of “Market Measures” with Tom Sosnoff and Tony Battista for the takeaways and the detailed results of the study comparing 30 DTE and 60 DTE short strangles.