Choosing Strikes and Expirations

Two dials run the whole game

Building a multi-leg trade looks complicated, but in practice you are mostly turning two dials. Dial one: which strikes do the short legs sit at. Dial two: how many days until expiration. Get those two right and the rest of the trade falls out of the chain — your wings, your credit, your break-evens are mostly determined.

Strike selection with delta. The delta of an option is roughly the model-implied probability that the option ends in the money at expiration. So if your short call has a delta of 16, the model says there is about a 16 percent chance price closes above that strike. Pick 16-delta shorts on both sides of an iron condor and your model-implied probability of profit at entry is roughly 68 percent — one standard deviation out on each side. Want a safer trade? Move to 10-delta shorts (about 80 percent probability of profit, but smaller credit). Want a bigger payout? Move to 30-delta shorts (about 40 percent probability of profit, fatter credit).

Expiration selection. Theta decay is not linear in time — most of an option's extrinsic value evaporates in its final 30 days. That means premium-selling strategies want to live in the part of the time curve where decay is accelerating. The widely cited sweet spot is 30 to 45 days to expiration at entry. Anything longer and decay is too slow; anything shorter and gamma risk (sensitivity to price moves) becomes brutal. Most retail premium sellers stick within that window.

Two caveats. First, delta is a model output, not a guarantee. It assumes a lognormal distribution of returns, which understates the frequency of fat-tailed moves. Treat probability-of-profit numbers as ballpark, not gospel. Second, IV regime matters. If IV is at multi-year lows, the credit you collect at 16-delta is small relative to the wing width, and the risk-reward gets ugly. If IV is elevated, 16-delta credits are richer. The same delta gives different P&L profiles depending on where vol sits.

Recap: pick strikes with delta (16 = 1 std dev OTM), pick expiration with the 30-to-45-DTE window. Adjust dials based on IV regime and on how aggressive you want the trade.