Shorter-Dated Options Offer More than Greater Annualized Covered Call Returns – March 16, 2026
Covered call writers know to avoid the “shiny object” of long-dated options total dollar premiums and to annualize the initial returns to get a fair assessment as to how much cash flow we are generating. But is that the only benefit of shorter-dated options? In this article, I will make a case that there are additional benefits to shorter-dated options using a real-life example with iShares Bitcoin Trust ETF (Nasdaq: IBIT).
IBIT short & long-dated option chains
- The 1-month $66.00 call strike has a bid price of $2.31
- the 14-month $66.00 strike shows a bid price of $15.30 (the shiny object)
Calculating the short- and long-dated initial option returns using the BCI Trade Management Calculator (TMC)
- The duration of the short and long-dated trades are 31 and 444 days, respectively
- The 31-day trade generates an initial time-value return of 3.62%, 42.64% annualized (brown cells)
- The 444-day trade (the “shiny object”) returns an initial time-value return of 23.98%, 19.72% (pink cells)
- The shorter-dated options more than doubles the annualized returns of the longer one
Additional advantages of short-dated options
Have a look in the purple cells of the TMC. The max additional profit we can generate from share appreciation is 3.46%. Using monthly or weekly options allows use to continually raise the OTM strikes (if bullish) and generate substantially greater returns on the stock side of the trade. Share appreciation will not be capped at 3.46% over the next 444 days.
Another advantage is that we will be able to re-evaluate our bullish assumptions regarding IBIT 12 – 52 times a year depending on if we are implementing weekly or monthly expirations
Discussion
When comparing the pros & cons of short versus long dated options, there is no contest. Short-dated options win in every way. We must put on our sunglasses and avoid the “shiny object” of the large initial cash premium, and we will be handsomely rewarded in the long run.
Author: Alan Ellman