How Long Should You Hold an Option Trade? (2024)

How Long Should You Hold an Option Trade? (1)

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George Portofino

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Published Feb 25, 2024

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Introduction: Hey there, fellow investor! Let's talk about one of the most commonly asked questions in the world of options trading: how long should you hold an option trade? It's a tricky question, and the answer isn't always straightforward. But don't worry, I've got you covered. I'm going to share one of my secret strategies that could help you make more informed decisions about when to hold and when to fold.

So, here's the thing – a lot of people get into options trading because they're looking for that quick fix. They want to make a big profit in a short amount of time. And sure, that's possible. But it's also risky. You see, options have an expiration date, which means you need to be strategic about when you buy and when you sell. And that's where my secret strategy comes in.

How Long to Hold: Now, I'm not an investment advisor, but I can tell you what works for me. For long positions, I like to hold my options for at least 100 days. This gives me plenty of time to ride out any market fluctuations and take advantage of any upward trends. For short positions, I usually hold for about 50 days. This allows me to capture profits quickly and move on to the next opportunity.

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Take Trends and Hold: Another key part of my strategy is to take trends and hold. What does that mean? Well, it means that I look for stocks that are trending in a certain direction – either up or down – and I hold on to my options until that trend reverses. This allows me to maximize my profits and minimize my losses.

So, how long should you hold an option trade? Well, it depends on your strategy and your risk tolerance. But if you're looking for a more conservative approach, you might want to consider holding your options for at least 100 days for long positions and 50 days for short positions. Of course, this is just one approach, and there are many other factors to consider when trading options. But hopefully, my secret strategy will help you make more informed decisions about when to hold and when to fold.

Disclaimer: I'm not an investment advisor, and this article should not be considered financial advice. Options trading is risky and may not be suitable for all investors. Always do your own research and consult with a qualified financial professional before making any investment decisions.

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How Long Should You Hold an Option Trade? (2024)

FAQs

How Long Should You Hold an Option Trade? ›

So, how long should you hold an option trade? Well, it depends on your strategy and your risk tolerance. But if you're looking for a more conservative approach, you might want to consider holding your options for at least 100 days for long positions and 50 days for short positions.

When should you exit an options trade? ›

Exiting trades early won't require a lot of effort, but it will improve your option trading a lot. I advise to close out positions at 50% of the maximum profit. If you want you still can go higher, but many studies have shown that 50% of the max gain is a very ideal point to exit.

What is the best length for options? ›

What this means for the average options trader is that options contracts with shorter time frames are more likely to produce profitable trades because they reduce factors beyond your control like huge changes in implied volatility. They say that the “sweet spot” for option trading time frames is between 30 and 90 days.

Is it necessary to hold option till expiry? ›

Futures contracts need to be settled before the expiration date to avoid penalties. However, there is no penalty on not settling an options contract before the expiration. You can simply let the contract expire if you wish not to buy or sell the asset.

What is the best timeframe for options trading? ›

Ans: The appropriate time frame for options trading depends on your purpose and research of the trade. However, a range of 30-90 days can be a good time frame for most trades.

Is it bad to let an option expire? ›

Is It Better to Let Options Expire? Traders should make decisions about their options contracts before they expire. That's because they decrease in value as they approach the expiration date. Closing out options before they expire can help protect capital and avoid major losses.

How long can I hold options? ›

Since a common Options contract has an expiration date of three months, traders buy Long-dated Options to increase their time horizon and diversification through different periods.

What is the 60 40 rule for options? ›

The IRS applies what is known as the 60/40 rule to all non-equity options, meaning that all gains and losses are treated as: Long-Term: 60% of the trade is taxed as a long-term capital gain or loss. Short-Term: 40% of the trade is taxed as a short-term capital gain or loss.

Can you trade options with 100 dollars? ›

If you're looking to get started, you could start trading options with just a few hundred dollars. However, if you make a wrong bet, you could lose your whole investment in weeks or months. A safer strategy is to become a long-term buy-and-hold investor and grow your wealth over time.

What happens if I don't sell my call option? ›

If I don't exercise my call option, what will happen? With an options contract, you are not obligated to take any action. If the contract is not fulfilled by the due date, it automatically terminates. Any option premium you paid will be returned to the vendor.

What happens if I don't square off options? ›

If you overlook squaring off your options positions on the expiry day, the position will settle based on the exchange's determined price. The difference between the settlement and your entry prices will reflect in your trading account ledger.

What happens if option price goes to zero? ›

If the option goes to 0, you'll lose whatever you paid for it. You can't sell it while it's at 0 because no one wants to buy it. Note, an option worth 0 won't be 0 if there's a buyer.

How long does it take to be a profitable options trader? ›

Prepare to put in a minimum of 6-12 months (working on a single strategy) before you develop enough consistency to see a profitable month. Strategy hopping and any “unlearning” of bad trading behaviors are going to lengthen this 6-12 month timeframe.

What time of day should I sell options? ›

The first hour, or 15 minutes, is the most volatile trading time. New traders should avoid the first 15 minutes until they have enough practice in a simulator. The middle of the day is the calmest and most stable time to trade. Volatility and momentum tend to pick up again from 2 PM on.

When to take profit options? ›

You don't need to hit home runs to win the investing game. Focus on getting base hits. To grow your portfolio substantially, take most gains in the 20%-25% range.

Should put option be short or long? ›

A long put option strategy works well when you're expecting the underlying asset to sharply decline or be volatile in near future. Short Put works well when you're Bullish that the price of the underlying will not fall beyond a certain level.

Is it better to buy short term or long term options? ›

Time value and extrinsic value of short-term options decay rapidly due to their short durations. Time value does not decay as rapidly for long-term options because they have a longer duration. Time value decay is minimal for a relatively long period because the expiration date is a long time away.

How long are typical option contracts? ›

One of the most commonly traded types of options has monthly expirations. These contracts expire on the third Friday of each month and are considered the standard for many individual investors and traders.

Are long options risky? ›

Key Takeaways. A put option and a call option are two types of options contracts. Depending on the contract, risk can range from a small prepaid amount of the premium to unlimited losses. The long call option poses less risk than the naked call option, which relies on the movement of the market price.

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