Not sure if this is the right thread to discuss option strategies… but I’m happy to answer your question.
Closing out short options is not an exact science for me, but it depends primarily on the return target. In my options thread, I once said that I aim for a return of around 1% of the capital invested per two weeks (=> 25-30% per year).
If an option is performing well and I achieve this target ahead of schedule, I weigh up the return already received per day against the expected return per day for the remaining term. If the residual return is well below my goal, I buy back the option and sell a new put option that again meets my return target.
In your example (85% return after 30% of the option’s term), the case would be crystal clear to me. Your friend’s 1 dollar per day target is completely arbitrary and ignores your risk appetite, strike price and portfolio size.
In addition, closing a short option also allows you to reset the risk (underlying, term, return). Imagine how annoyed you would be if UNH shares really tanked in the autumn and you ended up owning the shares after all.
Because I’m interested: what return target have you set yourself? And what terms do you typically choose (apparently much longer than me)?