From the characteristics of options themselves, these two types of options have their own advantages and disadvantages. Short-term options are cheap in premium and low in construction cost, but their time value decays quickly and their validity period is short. If there is no profit within the validity period, the premium will soon disappear and the transaction will end in failure.
The high premium of long-term options often discourages investors, which is its biggest disadvantage. However, the time value decay rate of long-term options is low, which makes them more tolerant than short-term options in the consolidation market, and the long-term options have a longer validity period, which indirectly improves the winning rate.
Comparison of advantages and disadvantages between long-term and short-term choices
So which one should I choose in the actual transaction? We should comprehensively consider the following aspects.
The first thing to look at is the market. If the market's directional expectation is clear, it is more suitable to buy short-term options. For example, before the announcement of important news, if it is judged that the market may fall, you can buy short-term put options. In this way, if the news comes out, the market will really fall, because the Delta of short-term options is very high, the profit rate will be very fast, and profits can be accumulated quickly. Even if the judgment is wrong, the price will rise, because the cost is low and the loss is small.
On the contrary, it is difficult to predict when the market will reverse after the market has experienced large fluctuations and is in the bottoming or topping stage. At this time, long-term options are more useful than short-term options, because long-term options have a long validity period and can better tolerate market shocks and retain more profit opportunities.
Secondly, we should compare the implied volatility of long-term and short-term options. Volatility is an important factor affecting the option price. When the volatility is high (low), the option price is relatively high (low). By comparing the implied volatility of options with different maturities, we can sell high volatility options and buy low volatility options, thus improving the winning rate.
In addition to the above two points, personal preferences are also worthy of respect. Some investors don't like the decay of time value by nature, and the psychological pressure of holding positions is too great, so long-term options are a reasonable choice for such investors; Other investors like to fast-forward and fast-out. Short-term options can provide him with the highest profit rate, so short-term options are suitable weapons for him. Trading is a diversified and personalized art. Only by rationally choosing long-term and short-term options on the basis of respecting personal preferences can the power of options be truly exerted.