Expiry Date for Sellers

Selecting the right expiry dates is a crucial step in my options selling strategy. My main objective is to take advantage of something called "theta decay". This is simply the expected decrease in the value of an option over time.
Each option comes with a "delta" value. Think of it as a barometer of the risk you're willing to take on. If you're dealing with options that have a delta between 0.25 and 0.30 (which reflects a moderate risk level), I'd suggest you set an expiry date around 45 days. The reasoning here is that most of the theta decay usually happens between the 45th and 20th day before expiry.

Another thing you should consider is the "gamma risk", which refers to potential sudden changes in the option's value. To manage this risk, my advice is to buy-to-close your position when there are 20 days or less left. Ideally, do this when you've made a gain of 25-50% on your initial investment.

Now, let's consider if you're selling options with a lower delta - specifically between 0.10 and 0.15. My advice would be to opt for a slightly longer expiry date, somewhere between 50 and 75 days. This adjustment is because the maximum theta decay for this lower delta range tends to occur over a longer period. To protect your profits and minimize risk, I would suggest closing your position before the 30-day mark.

In essence, the relationship between delta and theta decay can be summarized in the final graph. However, let's not forget an important point: while we've discussed general strategies and patterns with delta-theta decay, the market can be unpredictable. An option that starts as being out-of-the-money (OTM) can quickly shift to at-the-money (ATM) or even in-the-money (ITM). What this means for you is that your strategy needs to be flexible. You must be prepared to adjust your plans based on how your options are performing.