Definition
Average Days Till Expiration (DTE) is the average time remaining until your options contracts expire when you enter the trade. It’s crucial for options traders, as time decay (theta) affects options pricing.
Formula
Add up the days till expiration for all trades and divide by the number of trades.
Average DTE = Total DTE of All Options Trades / Total Number of Options Trades
Example 1
- Total DTE of all trades: 600 days
- Number of trades: 20
- Calculation: Average DTE = 600 days / 20 = 30 days
- Interpretation: On average, trades have 30 days until expiration at entry.
Example 2
- Total DTE of all trades: 900 days
- Number of trades: 80
- Calculation: Average DTE = 900 days / 30 = 30 days
- Interpretation: Consistent average DTE across trades.
| How It Can Be Used | Limitations |
|---|---|
| Managing exposure to time decay (theta) | Doesn’t distinguish between winning and losing trades |
| Aligning strategies with market events | Can be skewed by trades with extreme DTEs |
| Balancing portfolio time horizons | May not capture nuances of different options strategies |
In Practice
Understanding your Average DTE helps in planning your options strategies effectively, particularly in managing time decay and aligning with anticipated market movements.
