The One Number That Tells You Which Option to Sell

Tom Preston breaks down the number he uses to decide which option to sell, called theta return on capital, meaning how much time decay you collect for each dollar of capital you tie up. He points out something many traders miss, that the capital required for a short put barely changes whether you go out one week or five weeks. So the expiration you pick is really about the theta. He uses a benchmark of about one tenth of a percent of theta per day, then shows how stacking a batch of these trades turns a portfolio into what he calls a theta machine, a steady drumbeat of decay that helps offset losing trades. He is clear this is not a promise of big returns. None of this is a trade recommendation. 📊 tastylive: https://www.tastylive.com/ 📰 Get Tom's pre-market analysis every morning: https://www.tastylive.com/newsletters 📘 FREE Options Strategy Guide: https://tinyurl.com/bp9ms763 📱 Follow tastylive on X: https://x.com/tastyliveshow Chapters 00:00 Profiting from theta explained 00:46 What returns to expect from theta 01:05 Naked short puts and margin 01:39 Capital is a percent of stock price 02:12 The Comcast example 03:12 Expiration barely changes the capital 04:16 Theta return on capital 04:25 The one tenth percent benchmark 05:12 How theta backstops your losses 07:09 Comparing strikes for better theta 08:05 Your portfolio as a theta machine #tastylive #optionstrading #theta #thetadecay #sellingoptions #shortputs #optionsstrategy #tastytrade #optionseducation #tompreston tastylive is a real financial network, producing hours of live programming every day. Follow along as our experts navigate the markets, provide actionable trading insights, and teach you how to trade. With over 120 original segments, and over 25 personalities, we'll help you take your trading to the next level, whether you are new to trading or a seasoned veteran. tastylive content is created, produced, and provided solely by tastylive, Inc. ("tastylive") and is for informational and educational purposes only. It is not, nor is it intended to be, trading or investment advice or a recommendation that any security, futures contract, digital asset, other product, transaction, or investment strategy is suitable for any person. Trading securities, futures products, and digital assets involve risk and may result in a loss greater than the original amount invested. Investment information provided may not be appropriate for all investors and is provided without respect to individual investor financial sophistication, financial situation, investing time horizon or risk tolerance. Options, futures, and futures options are not suitable for all investors. Prior to trading securities, options, futures, or futures options, please read all applicable risk disclosures, including, but not limited to, the Characteristics and Risks of Standardized Options Disclosure and the Futures and Exchange Traded Options Risk Disclosure Statement found at https://tastytrade.com/disclosures/. Past performance is not indicative of future results. Performance is not presented net of all commissions, fees, and expenses. Multi-leg option strategies incur higher transaction costs than single leg trades as they involve multiple commission charges. Examples provided are for illustrative, informational, and educational purposes only and are not intended to be reflective of results you can expect to achieve. Supporting documentation for any claims, including claims made on behalf of options programs), comparisons, statistics, or other technical data, if applicable, will be supplied upon request. tastylive, through its content, financial programming or otherwise, does not provide investment or financial advice or make investment recommendations. tastylive is not a licensed financial adviser, registered investment adviser, or a registered broker-dealer.