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No. of Recommendations: 3
<<My understanding has been that it's better to take advantage of time decay one month out.>>

For covered calls, you are correct because all you are trying to do is bring in a little extra income to your existing stock position. The real risk of your position is not the option but the stock. The stock may decline but likely no more than 20%-30%.

However, the WFMI spread trade is a pure options position. If I am wrong on my bullish directional bias and the stock falls to $40 or below, I risk total loss (100%). In this case, I need a substantial reward-to-risk ratio to make it worth my while. Consequently, I am willing to trade off a longer time frame for a larger option premium. The March 45/40 put spread brought in a premium of only 1.25 whereas the May 45/40 brought in a premium of 1.75.

Could I sell the March put spread and then at March expiration roll over to the May put spread, just like I would do with a covered call? Yes, but since there is risk of total loss at March expiration, I don't want to.

There is no right or wrong answer to time frame; I'm just telling you my personal trading preferences.

Jim

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