Choosing an expiry: weekly, monthly or 45 days

Shorter expiries annualize better on paper because theta accelerates near the end. They also cost you more in spreads, more commissions, and far more of your attention. For most people writing covered calls, the monthly is the right default and the weekly is a trap dressed as a yield.

Run the arithmetic and weeklies look unbeatable. A $0.22 credit on a 7-day call against a $71 stock annualizes to about 16 percent. The same stock's 41-day call at $0.62 annualizes to about 7.7 percent. Weeklies win by more than double.

Then you actually trade them for a year.

What the annualized number leaves out

You cross the spread 52 times instead of 12. If the bid-ask costs you $0.04 per trade, that is $2.08 per share per year on weeklies against $0.48 on monthlies. On a $71 stock the weekly spread drag alone is 2.3 percent a year, which is a third of the yield advantage gone before commissions.
Weekly chains are thinner. Outside the largest names, weekly open interest at your strike is often in the low hundreds or worse, and the market is wider precisely when you want to be filled.
Gamma is brutal at the end. In the last week, a small move in the stock swings the option's delta hard. A call you sold at 0.20 delta can be 0.60 by Thursday. That is the mechanism by which weekly sellers get repeatedly called away on the one week the stock runs.
It is a job. 52 decisions a year, each requiring you to check the calendar, the chain and the spread. People skip the checks. That is when the earnings date gets missed.

Where the 45-day convention comes from

The 45 DTE rule of thumb is real and has a real basis: theta decay is not linear, and the steepest part of the curve is roughly the last 30 days. Opening around 45 days and closing or rolling around 21 puts you in the fastest-decaying stretch without holding into the gamma mess of the final week.

It is a good default. It is not a law, and it comes from the short-premium world of defined-risk spreads more than from covered calls specifically. If you own the shares anyway, holding to expiry is far less dangerous than it is for a spread trader.

The monthly case

Standard monthly expiries, the third Friday, carry the deepest open interest and the tightest markets on almost every optionable name. That is not a small technical detail. It is the difference between filling at the mid and giving up 15 percent of your credit.

Twelve decisions a year is also a cadence a person can actually sustain alongside a job. The best strategy you abandon in March loses to the mediocre one you still run in December.

The honest ranking

Monthly, 30 to 45 days out. Best liquidity, sane workload, most of the theta. Start here.
45 DTE opened, managed at 21. Slightly better decay capture if you will actually do the management.
Weekly. Only on the most liquid names in the market, and only if you are at a screen anyway. SPY and QQQ weeklies are genuinely liquid. Your mid-cap's weeklies are not.
Anything past 60 days. You are locking up the shares for a premium that decays slowest at the start. The annualized return is poor and you cannot react.

One rule overrides all four: do not let the expiry straddle an earnings date without deciding to. Picking the monthly by habit and finding out afterwards that earnings land four days before it is the single most common unforced error in this strategy. Covered calls and earnings covers what to do about it.

Questions people actually ask

Do weekly covered calls make more money?

On paper, usually. After spreads, commissions and the assignment you eat on the week the stock runs, the gap narrows a lot and can invert on anything but the most liquid names.

What does 45 DTE mean?

Days to expiration. Opening a position roughly 45 days out is a convention aimed at capturing the steep part of the theta decay curve while avoiding the final week, where gamma makes the position swing hard.

Should I hold to expiry or close early?

If the call has almost no extrinsic value left, closing costs little and frees the shares. Many sellers close at 50 percent of maximum profit rather than waiting out the last pennies. Holding to expiry is cheaper in commissions and fine when you own the shares.

Keep reading

Do the math on your own trade

Every price in this article is an illustrative worked example, not a quote. Read Covered calls for the rest of the series, and the disclaimer before you act on any of it. Selling options carries real risk of loss, and the loss can be far larger than the premium you collected.