While we’re fans of selling shorter-term options here at Trader’s Reserve, we occasionally recommend longer-duration trades. These trades generally have 40 to 65 days to expiration (DTE), but that doesn’t necessarily mean we’re looking to hold that long.
Rather, we tend to look to exit the trade early with 50% to 60% of max profit within roughly 20 days after entering the position, or when we hit a 1% net return on capital.
One of the benefits of longer-duration trades is that you collect a larger premium upfront. This often gives you the opportunity to close early for significant profits if the underlying stock is moving in your favor, or you can let the trade run longer to capture the full profit. And if the stock moves against you, the additional time to expiration gives you more time to manage the position.
Another benefit of longer-duration trades is that you don’t need to watch them as closely as you do with shorter-term expirations. And you may find success setting good ‘til canceled (GTC) orders to close positions, allowing you to automate profits once the premium drops to your target exit price.
As for selecting longer-duration options, you’ll want to target stocks with higher implied volatility (IV) ranks and decent liquidity and look for strikes with a 15 to 25 delta, just as you would when selling shorter-term options. But you’ll also want to make sure the stock has options with rich premiums 40 to 65 days out.
In this week’s Options Income Weekly Live Trading Session, we covered five stock candidates that would make for good longer-duration trades.
We’ve also been using this tactic successfully in the Income Masters program, In fact, last week, we discussed how we used it with liquefied natural gas producer Cheniere Energy (LNG).
We sold a put option that was 57 days out to collect a large chunk of cash. We closed the trade after just 11 days, booking a profit of $110 per contract, or nearly 60% of the max profit, and earning a 0.8% return, or 28% annualized.
One day later, we turned around and sold another long-term put on LNG. This time, we used a good ‘til canceled order to juice our returns, collecting $200 per contract. We have been in that trade just six days now, but it looks like we will be closing it early as well for an excellent profit.
While you may love trading short-term options for income, consider adding this longer-duration strategy to your trading arsenal. And remember, there’s no rule that says you have to hold till expiration!
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