Monthly options have been the backbone of options trading for decades. Unlike their weekly counterparts, monthly options offer more time for your thesis to develop and more forgiving timing requirements. This guide will show you how to optimize your monthly options timing for consistent results.
Understanding the Monthly Options Cycle
Monthly options expire on the third Friday of each month. This standardized expiration creates predictable patterns that savvy traders can exploit.
The monthly cycle: Most professional options traders operate on a 45-21 DTE (days to expiration) cycle, opening positions around 45 days out and closing around 21 days out. This captures the optimal theta decay window while avoiding expiration week gamma risk.
The 45 DTE Entry Point
Research by tastytrade and other options educators has demonstrated that 45 days to expiration is the optimal entry point for selling options. Here is why this timing works so well.
Theta Acceleration
At 45 DTE, theta decay begins to accelerate noticeably. Options lose approximately 1% of their value per day at this point, increasing as expiration approaches. This acceleration benefits sellers while not being so rapid that there is no time to manage losing trades.
Probability of Profit
Positions opened at 45 DTE have higher win rates than those opened closer to expiration. You have more time for mean reversion to occur and for short-term volatility to smooth out.
Management Flexibility
With 45 days of time, you can roll positions, adjust strikes, or add legs without being forced into decisions by impending expiration. This flexibility is invaluable for risk management.
Calculating 45 DTE Entry
Monthly expiration is the third Friday of the month. Count back 45 calendar days to find your optimal entry window.
- March expiration (March 21): Enter around February 4-7
- April expiration (April 18): Enter around March 4-7
- May expiration (May 16): Enter around April 1-4
The 21 DTE Exit Point
Just as 45 DTE is optimal for entry, 21 DTE is the recommended exit window for most positions. At this point, you have captured the bulk of available theta decay while avoiding the heightened risks of the final three weeks.
Why Exit at 21 DTE?
- You have captured approximately 70% of the position's potential profit
- Gamma risk begins increasing significantly after this point
- The remaining profit potential does not justify the added risk
- Capital can be redeployed into the next monthly cycle
Profit Taking Rules
Regardless of days to expiration, consider closing positions when they reach 50% of maximum profit. This locks in gains and frees capital while the position is still in your favor.
The 50% Rule: Research shows that closing positions at 50% profit and redeploying capital into new trades generates better risk-adjusted returns than holding to expiration, even when those expiring positions would have been profitable.
The Monthly Options Calendar
Week 1: New Cycle Opens
The week after monthly expiration is when the new 45 DTE cycle begins for the following month's expiration. Use this week to analyze opportunities and begin opening positions.
Week 2: Primary Entry Week
This is typically the optimal week for opening monthly positions. You are right around 45 DTE, theta decay is accelerating, and you have maximum time for management.
Week 3: Management and Adjustment
Mid-cycle is for monitoring and managing existing positions. If positions are profitable, let them run. If they are challenged, consider adjustments or early exit.
Week 4: Decision Week
At approximately 21 DTE, make your exit decisions. Close profitable positions, close or roll losing positions, and prepare for the next cycle.
Expiration Week: Avoid or Trade Carefully
The final week before expiration is when most conservative traders are already out of their positions. If you hold through expiration week, be prepared for heightened gamma risk and potential assignment.
Timing for Different Strategies
Iron Condors
Enter at 45 DTE, exit at 21 DTE or 50% profit, whichever comes first. Iron condors benefit from time passing without large moves, making the 45-21 DTE window ideal.
Monthly Iron Condor Timeline
Trading a March expiration iron condor on SPY:
- February 5 (45 DTE): Open iron condor for $2.00 credit
- February 20: Position at 40% profit, continue holding
- February 27 (22 DTE): Position at 55% profit, close for $0.90
- Result: $1.10 profit per contract in 22 days
Credit Spreads
Similar timing to iron condors. The 45 DTE entry provides enough time for the spread to work in your favor without excessive premium. Exit at 50% profit or 21 DTE.
Covered Calls
Monthly covered calls can be opened at various times, but 30-45 DTE is optimal. This provides meaningful premium while giving the stock time to potentially be called away at profit.
Cash-Secured Puts
Enter around 45 DTE when selling puts on stocks you want to own. The extended timeframe allows for higher premium collection and more time for the stock to stay above your strike.
Avoiding Common Monthly Timing Mistakes
- Opening too close to expiration: Selling options at 14 DTE leaves little room for error
- Holding too long: Letting winners turn into losers by holding past 21 DTE
- Ignoring earnings: Opening positions without checking if earnings fall within the cycle
- Fighting the trend: Opening neutral strategies in strongly trending markets
- Oversizing positions: Taking on too much risk relative to account size
Integrating Monthly and Weekly Options
Many traders use both monthly and weekly options in their portfolios. Monthly options serve as the core income-generating positions, while weekly options are used for tactical trades around specific events.
Combined Approach
- 70-80% of capital in monthly options positions
- 20-30% of capital in weekly options for specific opportunities
- Monthly positions provide steady income
- Weekly positions capitalize on short-term opportunities
Adjusting Timing for Market Conditions
High Volatility Markets
During high volatility periods (VIX above 25), consider selling options at 30 DTE instead of 45 DTE. This reduces exposure time while still collecting elevated premium.
Low Volatility Markets
In low volatility environments (VIX below 15), you may need to extend to 60 DTE to collect meaningful premium. Alternatively, consider buying options to benefit from potential volatility expansion.
Earnings Season
During earnings season, be extra careful about timing. Map out earnings dates for all underlying stocks and avoid holding positions through earnings unless specifically trading the event.
Optimize Your Monthly Options Timing
Pro Trader Dashboard tracks your entry and exit timing, showing you how DTE affects your win rate and profitability. Identify your optimal timing patterns.
Summary
Monthly options timing follows a predictable cycle: enter around 45 DTE, manage through the middle of the cycle, and exit around 21 DTE or at 50% profit. This approach balances premium collection with risk management, providing consistent results over time. By aligning your trading with the monthly expiration cycle and following disciplined entry and exit rules, you can build a sustainable options income strategy.
Continue building your timing knowledge with our guides on expiration week strategies and when to roll options positions.