SmoothSailing#19

TastyTrade likes to recommend selling options with 42 days to expiration, (DTE) then rolling them around 21 DTE.  Supposedly this captures some of the theta decay, which is just fancy talk for time value, and avoids most gamma volatility.  (Gamma is merely the first derivative of delta, df(x)/dx.  Way, way more information than we need.) 

So, of course, I’ve been trading some of those.  What I’m finding is that the time decay is too small in that first 21 days, so that the premium/profit level is way too small.  As we know, the shorter the contract the more per day we get paid in premium.  This method does just about the opposite by staying 21 days out minimum at all times, reducing the per day amount significantly.  And besides, gamma is irrelevant if you don’t care about getting assigned, which typically we don’t, and gamma is also irrelevant when you know how to properly manage a position on expiration day.  Gamma is irrelevant to us, period.  Even with this 42-21 day set-up, if the stock moves enough you can still get blown out and have to manage it just like you do with short contracts, however the remaining time value in the 21 day trade makes it harder to roll out successfully.

So screw TastyTrade.  They like to talk fancy and make lots of videos, but I don’t buy it.  It really amazes me to read all these option trading sites and follow the Reddit trading gangs and see self-imposed but needless complexity and these vain attempts to chase complex trading strategies that just don’t work.  Simple is better.

“Complex investments exist only to profit those who create and sell them. Not only are they more costly to the investor, they are less effective.”

-JL Collins