Managing the Options Cycle
Why a 120-day cycle?
An option's time value doesn't decay evenly β it decays faster and faster as expiry gets closer. We chose 120 days because it's optimal:
The ice cream analogy
Picture a scoop of ice cream on the table. For the first while it melts slowly. But in the last few minutes β it melts fast. An option's time value works the same way. It melts slowly for the first 90 days, then very quickly in the last 30. That's why we swap the option once 30 days are left.
| Cycle length | Decay speed | Cost efficiency | How often you manage it |
|---|---|---|---|
| 30 days | Very fast | Cheapest, but frequent swaps | Every month |
| 60 days | Fast | Average | Every 2 months |
| 120 days | Slow, even | Good balance | Every 3 months |
| 180 days | Very slow | Expensive | Every 6 months |
How time value decays
| Days left | Time value remaining (% of original) | Lost per day (% of original premium) |
|---|---|---|
| 120 | 100% | ~0.4% |
| 90 | ~87% | ~0.5% |
| 60 | ~71% | ~0.6% |
| 45 | ~61% | ~0.7% |
| 30 | ~50% | ~0.8% |
| 14 | ~34% | ~1.2% |
| 7 | ~24% | ~1.7% |
| 1 | ~9% | ~4.6% |
The table is computed from the standard approximation: an ATMATMAt The Money β an option whose strike sits at the current price.Read the lesson β option's time value is proportional to the square root of the time remaining (with IVIVImplied Volatility β the volatility the market expects. SOL IV is roughly 70-80%.Read the lesson β held constant). Both columns are measured from the same base β the original 120-day premium.
At 30 days left, half the time value has already melted away. The other half burns off over the remaining 30 days β the same amount as in the first 90 days, just at roughly 3x the pace. That's why this is our "swap window."
Once you've internalized this curve, you'll decide for yourself when an option is still worth holding and when it's time to swap it. No more guesswork: you manage the cycle on a clear schedule.
PUT rule: SWAP when 30 days are left
PutPutAn option type that grants the right to SELL at a set price. Used as insurance.Read the lesson β options are your insurance. They must be swapped (rolled) on time.
Put swap procedure (step by step)
When the PutPutAn option type that grants the right to SELL at a set price. Used as insurance.Read the lesson β option has 30 days left:
Step 1 β Sell the old Put Spread:
- Close the Long PutPutAn option type that grants the right to SELL at a set price. Used as insurance.Read the lesson β $90 (sell)
- Close the Short PutPutAn option type that grants the right to SELL at a set price. Used as insurance.Read the lesson β $65 (buy back)
- Close the Short PutPutAn option type that grants the right to SELL at a set price. Used as insurance.Read the lesson β $60 (buy back)
- Result: you get the remaining value back
Step 2 β Buy a new Put Spread:
- New date: +120 days from today
- StrikeStrikeAn option's exercise price. A $90 put means the right to sell at $90.Read the lesson β: review against the current price
- If the price rose +15-20%: move the strike up
- If the price hasn't changed: use the same strikes
Step 3 β Calculate the cost:
- Proceeds from closing the old positions
- Minus the cost of the new positions
- The difference = the "swap cost" (typically $100-300)
CALL rule: DON'T SWAP β let it expire
The Covered CallCovered CallAn options strategy: sell a call option while holding the underlying asset. Generates premium income but caps upside.Read the lesson β should simply run to expiry. Why?
| Reason | Explanation |
|---|---|
| Time works for you | You're the seller β the more time passes, the more you earn |
| Swapping costs money | Every swap = paying the bid/ask spread twice |
| If exercised β it was planned | SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson β sold at $160, i.e. +82% above the current $88 β that's a ceiling you chose in advance, not a surprise |
| Simplicity | Fewer actions = fewer mistakes |
After the Call expires:
- If the CallCallAn option type that grants the right to BUY at the strike price. The opposite of a put.Read the lesson β is worthless (price < $160) β sell a new 120-day CallCallAn option type that grants the right to BUY at the strike price. The opposite of a put.Read the lesson β
- If the CallCallAn option type that grants the right to BUY at the strike price. The opposite of a put.Read the lesson β is exercised (price > $160) β SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson β is sold, USDCUSDCA USD stablecoin issued by Circle. Regulated, audited monthly. Our primary stablecoin and loan asset in the Kamino/Aave strategies.Read the lesson β received β top up the vault
Annual calendar
Notice the difference in rhythm: the PutPutAn option type that grants the right to SELL at a set price. Used as insurance.Read the lesson β is swapped 30 days before its 120-day expiry, so one PutPutAn option type that grants the right to SELL at a set price. Used as insurance.Read the lesson β "cycle" runs ~90 days. The CallCallAn option type that grants the right to BUY at the strike price. The opposite of a put.Read the lesson β is held to expiry, so its cycle is the full 120 days. That's why the two schedules drift relative to each other.
Total per year: ~4 PutPutAn option type that grants the right to SELL at a set price. Used as insurance.Read the lesson β swaps (365 / 90), ~3 CallCallAn option type that grants the right to BUY at the strike price. The opposite of a put.Read the lesson β renewals (365 / 120).
What does a swap cost?
| What affects the cost | How it affects it |
|---|---|
| VolatilityVolatilityThe degree of price fluctuation. High volatility means greater uncertainty about price movement.Read the lesson β level (IVIVImplied Volatility β the volatility the market expects. SOL IV is roughly 70-80%.Read the lesson β) | High IVIVImplied Volatility β the volatility the market expects. SOL IV is roughly 70-80%.Read the lesson β = a more expensive new PutPutAn option type that grants the right to SELL at a set price. Used as insurance.Read the lesson β |
| Price change | If the price rose = the old PutPutAn option type that grants the right to SELL at a set price. Used as insurance.Read the lesson β has less value |
| Remaining value | The more time left β the more you receive when selling |
| Bid/Ask spread | A wider spread = a more expensive swap |
Typical cost: $100-300 per swap. That's the net amount for the entire Put Spread position β all three legs together (Long PutPutAn option type that grants the right to SELL at a set price. Used as insurance.Read the lesson β $90 x 200 SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson β, Short PutPutAn option type that grants the right to SELL at a set price. Used as insurance.Read the lesson β $65 x 100 SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson β, Short PutPutAn option type that grants the right to SELL at a set price. Used as insurance.Read the lesson β $60 x 100 SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson β), whose original net cost was $500. Not per contract.
When to break the cycle
Normally you stick to the schedule. But there are situations that call for acting early:
LTVLTVLoan-to-Value β the ratio of debt to collateral value. LTV 30% is considered safe. LTV 71%+ triggers liquidation.Read the lesson β >= 45% is a signal for urgent action: the SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson β price has dropped enough that the lending position has reached a level where it's time to react. Context: the strategy's target LTVLTVLoan-to-Value β the ratio of debt to collateral value. LTV 30% is considered safe. LTV 71%+ triggers liquidation.Read the lesson β is ~30%, and liquidation happens at ~71% β 45% isn't liquidation yet, but it's the threshold where you act ahead of time instead of at the last minute. You know what to do β pause the options cycle temporarily and put everything toward stabilizing the LTVLTVLoan-to-Value β the ratio of debt to collateral value. LTV 30% is considered safe. LTV 71%+ triggers liquidation.Read the lesson β.
Swapping the Put when the price has risen
If SOLSOLSolana's native token. Used to pay gas and as collateral.Read the lesson β rises from $88 to $105 (+20%):
| Element | Old spread | New spread |
|---|---|---|
| Long PutPutAn option type that grants the right to SELL at a set price. Used as insurance.Read the lesson β | $90 | $105 |
| Short PutPutAn option type that grants the right to SELL at a set price. Used as insurance.Read the lesson β 1 | $65 | $75 |
| Short PutPutAn option type that grants the right to SELL at a set price. Used as insurance.Read the lesson β 2 | $60 | $70 |
| Protection zone | $60-$90 | $70-$105 |
The protection moves with the price. Like renewing an insurance policy for a new asset value.
Automated alerts
The platform will watch for these signals:
| Signal | Level | What to do |
|---|---|---|
| 45 days left | Info | Start planning |
| 30 days left | Warning | Time to swap β act within 5 days |
| 21 days left | Critical | Urgent swap |
| 14 days left | Emergency | SwapSwapExchanging one token for another. E.g. SOL to USDC via Jupiter.Read the lesson β at any cost |
Next step: The last lesson in the module β Implied VolatilityVolatilityThe degree of price fluctuation. High volatility means greater uncertainty about price movement.Read the lesson β. You'll learn how volatility affects prices and when it's cheapest to buy protection.
Why a 120-day cycle with a swap at 30 days left? You'll see the answer yourself by comparing real premiums (~15 min). Just observation and arithmetic β no trading.
This is a PAPER exercise β we compare prices and calculate, we do NOT trade. Don't buy anything.
This is learning, not investing β use only small amounts you treat as tuition.
You just measured time value decay yourself and understood why the swap window sits at 30 days β most options users never check this.