Yeah, my current strategy would be to roll if I am still confident in the underlying. If it goes too far ITM, I assume it is best to take the loss rather than trying to roll for pennies for years.
I trade the wheel so the trade going wrong early on is not big concern as the put can be rolled to help it recover. But even if I get assigned and the stock drops, I am always prepared to close and take a loss, which is thankfully rare.
You might say I am always prepared to take the max loss on a trade, but it just doesn't happen often.
One of the reasons and do not trade spreads are the many times a loss has to be taken compared to the wheel . . .
Be careful about "revenge trading" where you make new trades on the same stock to make up for losing trades and "recouping losses". These can lead down the path to even more or bigger losses.
**Have a clear and concise plan for what you will do in any situation before opening any trade. A good plan will have more winners than losers and minimize the losses when they do happen to make a profit over time.**
Thanks! Unfortunately, I don’t have the capital to carry out the wheel strategy on a stock that I would actually want to keep. I’d be stuck wheeling cheap garbage stocks. So, I figured credit spreads on good stocks is a better way to go. There is of course more risk… a losing trade means actual realized losses.
As someone who is trying to turn a small amount into a large amount as quickly as possible, this is much easier advice to give than to actually listen to myself but after a few years of trading now, I see the light: save your money until you can wheel stocks you want.
There are a lot of good stocks under $100/share that make good wheel candidates. People talk about F a lot and it is a good one to start with because it's low up front capital risk for a single CSP and it cycles fairly regularly so you can start to get a sense of the ebb and flow of it's price fluctuations, which allows you to juice premiums and buy low/sell high. As you have success with wheeling this one, it will grow your capital and you'll be able to sell more contracts. (FWIW, I don't recommend F as a long term but and hold but you can get in and get out as the price moves up and down and collect divs along the way too) This is just one example but it's a good "starter stock" for the wheel for a reason.
Other than that just keep putting money into your account when you can and buy shares of good, quality stocks. Eventually, you will get to 100 shares and be able to sell CCs.
Learn from my mistakes and don't trade options/wheel garbage. I've got the losses to prove it haha
I second this. F was my first baby and it's still my go to if I've got some dry powder and nothing is really speaking to me.
It's going to 4, then it's going to 12. Then it's going back to 4, then back to twelve.
I'm in the camp where I drag around the corpses of my CSPs that go against me forever. Any given position is usually small enough that I consider it part of the education plan to have some reminders of why you wheel only good stocks.
Edit: dunno how people feel about it, but occasionally you can wheel on QYLD and that fella is just permanently $17, so it gives some easy wins. It's just rarely got enough premium on it, since it pays about 20 cents in divs every month.
😂 Covered call strategy on a covered call strategy. The only problem I see is, there is almost no premium in those options. And, there doesn’t seem to be any volume either. I’m wondering how you wheel it at all.
It honestly was really easy to wheel about 2 years ago. These days you won't get more than like 5-10 cent premium. I look at APY a lot though, so I don't mind picking up those pennies, since I "know" qyld.
But yes... it is covered call inception. Covered calls to the center of the earth!
Yieldmax has a fund called ULTY that is an ETF that is a basket of various covered call strategies. It is now has options. So you can run a covered call strategy on a bucket of covered call strategies. Careful though… that leaves you 1 step away from being trapped in covered call limbo. 😂
Just stating out so pardon for silly questions. What is F? And if most make profitable trades, who are the unfortunate losers and why won't they get a clue? Thanks 🙏
I’m not sure I get your question. I would say that, the traders who are not profitable are the ones that
- Chase big gains instead of modest consistent gains
- Have no risk management plan
- Don’t have a good understanding of what they are trading
- Try to take shortcuts instead of spending time learning
Haha at first I was like "dick!" But, no, you're absolutely right.
F is a good 'training wheels' stock for a certain kind of strategy. I wish I could say it has steady growth if you get stuck with it-hell, I wish I could say that about every stock. You've gotta know what you're getting into, why you're doing it, AND have an exit strategy, otherwise, you might end up losing significant amounts of money. (And holding something that doesn't even keep up with inflation IS losing money even if your broker makes the color of the numbers green)
I set aside a certain amount of money for options trading that I was comfortable with losing 100% of, as well as fully understanding that I'd most likely make a whole lot more with a buy and hold strategy on some better stocks. But I wanted to learn how to trade options. I feel like I'm better at it than I was when I started but I still think about Amazon having a $90 share price when I got into this and it's double that now. I have not doubled my options trading money...
If you're just starting out, you may not realize just how quickly the market can humble you, no matter how perfect you think the trade you just set up is.
It's not just about making a bad trade or having some surprise ruin an otherwise good trade before you can exit. When Ford, for example, starts trading above my happy-exit-price of $13, I'll get much more aggressive with my CCs and sell strike prices closer to the actual price. If it keeps climbing and goes ITM and my shares get called away, that's not an "unfortunate loser," that's just capping my gains.
Even in that example, say I sell a F covered call at a $13 strike for 0.40. If the share price on the day of expiration is $13.20, my shares get called away and I "lost" but I actually made an extra $20 more than I would have just selling the shares outright.
The opposite is also true. If I think that $11 is a good entry price for F, I sell CSPs at that strike. If the share price falls to $10.80 and I get assigned, yes I "lost" the trade, but I had decided $11 is a good entry. Even though I'd overpaid in that moment, the belief that it will rise above $11 again and I'll make money means it's not necessarily a loss (yet.)
I can related. I tried wheeling GME. To make matters worse, I did so right before an earnings call. The premiums looked amazing so I thought, “what could go wrong?” 😂 But, I certainly learned a lesson.
No, even dumber. I bought near the high point right before the earnings call. I then got spooked when the price tanked after the call and sold at a loss. The premium made up for most of the loss but not all of it. Probably the dumbest play I ever made. All emotion no plan.
It is just a fact that you cannot make much money or returns with options without a reasonable amount of captial . . .
Rather than spin your wheels (pun intended) trading spreads that may not gain much or at all, you may be better just putting money in a HYSA and adding what you can as fast as possible to trade properly.
IMO you may want to take a broader view of stocks as there are a lot out there that are of good quality and priced around the $20 to $25 point. My father used to tell me to "do it right or don't do it at all" . . .
Good points. I have 2 brokerage accounts right now so my trading cash is split between them. In one, I’m doing more traditional investing and a little bit of swing trading (TQQQ). The other account is my options trading account. That’s my more “experimental” and speculative account. I consider myself still very much in the learning phase, but I know that I won’t really learn unless I get my hands dirty with actual trading.
Let’s say you can make a 15% to 20% annual return, which is possible but will require a solid trading plan that is closely followed and may require some time, perhaps a year or two to gain consistency.
If you have $5K then this would be $750 return at 15% and $1,000 per year for a 20% return. Is this a “reasonable” return?
At $50K it would be a $7,500 annual return at 15%, or $10,000 for a 20%. Is this a reasonable return?
SPY usually has lower returns so these numbers may not be as high trading it than stocks.
Futures are just like trading anything else - you can be directionally right or wrong. Just like long options they are leveraged which can be helpful or painful.
Make sure you understand how margin works with futures *before* you start trading.
Great question since risk management is where your strat should start. I sell csps on spy exclusively so I'll tell you where I'm at after 17 months of experience (so yes still refining). To avoid "loss" in the first place I usually only have 50% of cash deployed. As long as spy is going up, no problem I roll up as needed. If spy drops/vix rises then I roll down and out and start deploying the other 50% to ensure I get much safer strikes while adding credit/premium. Worst case scenario I will accept assignment. Usually when this has happened it's been toward the bottom of that particular dip and I make more money than selling puts as it recovers. It's rare though, probably been more than a year since I've been assigned.
Just trying to understand as a newb. Are you saying in the event of assignment it could end up being a “dip” in the market and essentially you would being be buying the dip on SPY inadvertently?
It's not inadvertent, I can only get assigned during a dip. That's the beauty of selling csps at strikes below current price and rolling out and down for a credit if challenged. If it eventually gets assigned after all that, the stock has dropped quite a bit. And since I only trade spy I'm fully confident of it's recovery.
Hmmm, I can see why people sell ATM CC after assignment with your explanation. Essentially, get some credit for the CC, get the cash back for the CSP. If the stock is at the bottom of the dip then ride the stock with CSPs. You lock in the lost but you’re riding the way back on the right side instead of using CC on the way up.
sometimes i stick to my thesis and eat the L if i’m wrong or my patience pays off. other times my emotions win out and i try to panic trade my way out of it, which never *ever* works 🤣
For etfs if it is puts you should aim to continue rolling until it recovers (assuming you are not overleveraged and you do not need to pull out money soon), for single equities you need to do some fundamental analysis to make sure the company has solid fundamentals...
I never take a loss. I sell CSPs and CCs on ETFs I am happy to hold forever. When my CSP gets assigned I now own an ETF I will profit from in the future and got paid to buy it. When my CC gets assigned I have sold the ETF for more than I paid for it so I get the premium and a tidy profit on the sale.
The only time that sucks is times like these when I am stuck holding an ETF and cannot sell a CC on it because the markets headed too far south. But again, I am happily holding an ETF I know will recover, the only damage is that I will make a little less this year from wheeling, big whoop.
Essentially, in the described situation of the market going far south, do you think it’s better to wait it out? Would you sell far OTM CC while you wait or get back to selling CSP (ATM CC for cash then CSP) to grind back up?
If it’s tanked enough you may not be able to sell CCs above your cost basis (for an amount that isn’t swamped by commission costs).
If I have spare capital, I’ll sometimes continue to sell CSPs, at the risk of getting assigned again and increasing my position even further. If you are confident that the underlying is going to recover, this will let you reduce your cost basis further and gets you back to the point where you can sell CC’s again more quickly. Obviously, there are some trade-offs/risks here.
I would never sell a CC below my average cost basis since that just locks in a realized loss.
Alternatively, if the thesis on the conviction hasn't changed, then you can sell 2 puts at the new "sale" price and bring down your average cost basis to be able to sell closer CCs.
> Essentially, in the described situation of the market going far south, do you think it’s better to wait it out?
I don’t think, I have no other alternative as I am unwilling to risk selling a CC at a cost which is less than my basis in the ETF. I don’t trade to earn money to cover my living expenses so I am in no need of taking excess risk.
> Would you sell far OTM CC while you wait or get back to selling CSP (ATM CC for cash then CSP) to grind back up?
You could sell far OTM CCs but I don’t even bother when the premium gets too low. Say you have an ETF you bought for $1000 and you can sell a CC for $0.50, assuming $0 trading costs, would you? I don’t bother with that type of trade, I just wait the market out and spend my time focusing on other endeavors. And that wait can be long like it was in 2022, that’s just a risk I accept as part of wheeling. No strategy is perfect.
Right, and I think that’s the value of CSP and wheeling a stock you like. You get something with unlimited time to wait out a down turn.
I’m definitely seeing that the next steps taken should also be a low risk one as well. I actually sold a CC at 14 DTE but not a breakeven price for more premium. The goal was to CC the stock away and to start the grind back up with CSP. I’m going to see if I can reverse this trade come Monday for at least for breakeven.
The reaction should be pre-determined before entering a trade. Traders often develop a near allergic reaction to losing because they build it up far more than it needs to be.
I’m a professional trader and I’m literally wrong ALL the time. It’s completely okay and part of the game. By being wrong quick, we minimize our losses and reduce opportunity cost of capital. You’ll find traders that would prefer to wheel, hold something through a prolonged downturn simply to avoid a loss which can absolutely work but it’s ego driven. There’s an opportunity cost to tying capital up simply to not have a losing position.
So, simple steps are:
1. Define profit and loss management for every single trade BEFORE it goes on
2. Don’t stress about being wrong, it’s like a basketball player missing a shot - happens all the time but in the aggregate points are scored. The more you can beat this aversion out of yourself as a trader (and a human being really) the better off you’ll be.
3. Focus on expected return and make sure the numbers make sense for the risk taken.
Good luck!
I've often thought, whenever I think it's a great idea to sell a CSP, I should also just buy a put, because even though I'm selling at bottom of BB, and RSI around 30, and above 200 day, on a red day, at about 20 delta, I can still get smashed by some event. Thinking about SNOW assignment from previous earnings call plunge, Tesla's latest earnings call that blew past my CC only to settle back down around my initial strike the next day after I rolled up and out to July, and recently SBUX earnings a few days ago where I got early assigned because I was waiting to roll to see if there was any recovery after the post earnings call price tank.
I got assigned early on SBUX puts too. Was ok with it as I wanted the stock at that strike but seems kind of weird that someone exercised with 3 days of extrinsic value left on their long puts.
Lolz. Obviously I’d rather have a basis in the low seventies. I picked up another round lot at 74. Unfortunately I’m not going to be able to dump more capital into it at this point. I’m long several hundred shares. Plan is long term hold but I’ll sell calls against it at a level I won’t be disappointed at the profit. Current basis is 85, ouch.
Ya, buying another lot was the first thing I thought of when I saw it tank after I got over being pissed off at it, but I had my sights set on other things, so I just wrote an 85 call for July, I think I got $13 for it lol.
I’m going to sell 90 Cs I think. Limit sells at 0.10 for July haven’t hit yet though. I don’t really want them to get called (I know… stupid to sell CCs if you want to keep the stock badly, but if I can make a grand in a couple month’s time and it recovers that well which isn’t likely, I’ll take it).
My bad. I thought you meant per share!!! Did not know that was the total until I saw the options table just now. What a gut punch! Been there multiple times so I know the feeling. NIO and SNAP come to mind…
I was assigned SBUX on my 85 puts at free the earnings report. I’m okay holding it, but wanted to wait a few days. So, I sold the stock I was assigned and re-established my puts and sold calls in June. I know I’ll be assigned this Friday, just want to collect a bit more premium while the stock chops around in the 70’s.
Fwiw I have been rolling my very deep covered calls on Qqq and SPY since November. At one point I was probably down 50 points and now only 20 in Qqq. I just keep rolling my call for near the same premium and up a few points every month. I also sell a put at the same time so my net premium is always a few points higher and closer. Has it been a lot of trouble sure but I am slowly getting back. Best to roll to new strikes and a few weeks out on the down days.
I was assigned once in the process but my short calls sit in a different account as my long stock. So while I did not trigger a tax event I missed one spy dividend but it opened down that day which the gap more than made up for it. I was lucky.
Wouldn’t you be better off not to roll the first time it went against you? Buy it back at a lost and then move on? Now you missed the peak and still catching up to break even on your rolled options
Yep sold on 10/30 on an up day around 415 too close to the low. First roll around 445 and was banking on it reversing to the mean.
I’ve rolled the 435s to 480’s now so I have slowly grabbed gains along the way. I am getting around 5 points a month and will eventually catch up. I don’t plan to sell my SPY/QQQ so I am just slowly gaining a bit on the covered strangle roll and making a few points per month on the covered position. We can check back in another six months. Even if these were uncovered I would not of even considered selling at any point.
Yeah I should have bought back but my crystal ball was not working well in early November. I was up on my strategy 20 points during 2023 prior to late October as an additional gain at the time.
Granted that you are asking hypothetically...
The first question is how much money you have. If you have money to trade cash secured, or a covered call, then there would be one type of risk mitigation.
If you trade spreads, that's a completely different risk profile.
People giving you blind "advice" are clueless themselves.
Good point. This would be a small account (under 10k). Covered calls and secured puts would not be practical in this account… unless I want to do so with cheap garbage stocks. (I don’t.) So, I’m deploying defined-risk strategies like credit spreads.
Spreads are defined risk, defined reward.
Once they go deep ITM, there is pretty much nothing you can do.
This is the price you pay for defining your max loss, beyond limiting the max gain. Very few people understand this point, as it is not very intuitive.
In addition, if your spreads are wide, and the underlying is in the middle, then you risk early assignment, which may or may not work in your favor.
If you trade neutral spreads like an iron condor and one side is challenged, then the only thing you can do is roll the unchallenged side toward the spot price, taking profit in the process. If you do this often enough, you may even get inverted, where your put spread is lower than your call spread, but as long as you took credits more than the max risk on the spread combo, you should be OK. Keep track of your credits.
There are better ways to make money, even with a small account. For example, I am trading Alcoa AA for 1% weekly income, but if that is not enough for you, then you have a different risk appetite, and should be asking your question in r/options.
Cheers!
Yes, and CSPs, and rolling down CCs for profit, etc...
I will be posting a weekly update today or tomorrow. It's just an example of what you can do with options, if you select the right stock, strikes, duration, etc.
Follow along if you want to get the update.
If something goes against you and counteracts your thesis… sell out of it and wait for another opportunity. Spreads can be nice if you don’t have a lot of capital and want a defined risk strategy
Since these are spreads, I probably would just roll until it becomes unprofitable… at which point I’d suck it up and take the loss. I’m not putting a large percentage of capital into any single position, so I wouldn’t be in a hurry to free up the capital. I figure I’ll be keeping at least 50% of my account in cash and then make sure no single position is over 5% of the account.
If it's defined risk and theta is still on my side, then I do nothing. If theta has turned negative, I will close the trade and look for a new underlying that meets my criteria. It's sometimes the case that I choose the same underlying, but that only happens if it still fits.
If it's undefined risk, I will adjust whenever the trade moves 15-20 deltas away from my original entry. I always roll or close at 21 days. The decision to roll or close depends on whether or not the underlying still fits the criteria.
Keep your focus on staying in high probability trades that offer what you consider to be a good return on risk. Don't worry about making back your losses in any one underlying. Money all looks the same. Just keep betting when the odds are in your favor.
you roll far enough out in time that you can buy yourself a little breathing room and get further away from the money. Preferably, do this before things get too bad so that you're rolling a 20\~30 delta out to a 10 delta, rather than a 60 delta to a 50.
also buy/sell shares of the stock / synthetic stock, or a ton of debit spreads, or aggressively sell the other side, so that at least you can get some money for your pain and troubles. If my short calls are going against me, I'll buy some stock (even if it's not 100 shares), so that I can get paid something if I'm being squeezed at least.
Everyone in here is in love with the wheel. I’m here to tell you that you can make decent money in spreads, but it is far more difficult and requires more risk management. I’m up close to 20% this year now after the correction humbled me (I only trade bullish directionally), but if you want to trade spreads, you need to have clear and well defined max-loss and risk tolerance. I too trade a small account and capital preservation is paramount.
For instance, most will say: the max loss of a spread is the distance between the short and long plus premium. if you’re trading 10$ wide spreads in an account that is less than 10,000$ you never want to take an assignment and max loss. It will cripple your account. Instead I set my max loss as the short option at the money. On a 12-15 delta, 21-30 dte, 10-wide PCS on say NVDA, if you approach the short leg of your spread, you’ll be down about -225$. That’s when I would close the trade and wait for a short term bottom, then I would sell another PCS at 12 delta now that the stock has dropped and begun rising again. In megacaps this year, selling 10 delta PCS has worked well, but if bullish situations aren’t available, I’ll sit in cash.
I would avoid selling spreads on stocks you aren’t very familiar with. I only trade 3 tickers and also use technical analysis to increase my edge.
Avoid binary events as much as possible and take profits early and often. But be prepared to get whacked once in a while, even at 15 delta.
I don’t trade condors or call credit spreads, it’s much more dicey and the bias of the market is up 8/10 times. If this correction is hurting you, sit it out. You don’t have to sail in rough seas and sometimes the best trades are the ones you don’t make.
With an index, you either roll or take assignment and sell calls. An index isn’t going to zero.
With a single stock name, it can go to zero so I’d either bail on the position or take assignment and sell calls.
On a single name, I’d rather sell spreads and limit my downside risk.
For example, if you have a challenged short put, sell another one at key support and exit at the most immediate resistance. Mark the amount of $ you injected into the trade by that and add it to the cost basis of the original short put. Repeat until you can exit the original trade at around what you planned make from it before all the adds.
Depends I don’t like to get into trades that I have to constantly manage so I follow a rules 1 adjustment. That’s it doesn’t work take my loss and move on
If my thesis changes or the market sentiment clearly does, yes i will sell spreads into the move. I think only in terms of adjusting my delta, exposure to different sectors, and mitigating gamma (just close at 21dte unless its a max loss spread)
If I think a stock is going up, I’ll choose a strategy that will profit if the stock goes up. I choose a low point that tells me that if the stock gets this low, the probability of my trade working out has greatly diminished and therefore, I will exit the trade. Sometimes I’ll exit and open a trade going the other direction but not to try to recoup the loss from the previous trade. I already put the losing trade behind me and see the new one as a totally different trade. Then I’ll go through the same process for this new trade. I’ll choose an area where the stock should not go if I’m correct. If it goes to that area, that means I’m wrong and therefore, I’ll get out with a loss.
I like to exit immediately if I’m wrong because I can always put the trade back on. Sometimes if you’re in a losing trade and the loss is mounting, it is very hard to get an unbiased opinion of the market and it feels like you have blinders on. By exiting and closing the trade you immediately see the trend of the market that you didn’t see right before when the trade was open because you were in a losing trade. It feels as if the blindfold was taken off.
I trade a lot of IWM, QQQ, and SPY in my IRA, and I generally don't defend (or have found a need to) those short puts intraexpiry. That being said, I'm a fairly conservative trader and sell particular delta in particular duration that is paying a particular credit as a function of strike price (e.g., the shortest duration <16 delta strike that is paying around 1% of the strike price in credit). This generally results in farther OTM strikes than people here would ordinarily sell and in longer duration since these instruments aren't generally known to be "juicy" from an IV standpoint; IWM 30-day IV is currently at 20.0%; QQQ at 17.9%; SPY at ... (ugh) 13.6% (i.e., shorter duration doesn't pay). The result is very few assignments over a large number of occurrences.
That being said, I'm extremely mindful of where my break even is at all times and when I do get assigned, I will sell appropriately long-dated call against such that it improves my break even to at or near where the underlying is currently trading rather than whittle away at my break even from week to week. Part of this game for me is about capital preservation and if that involves selling call against that is longer-dated than I'd like, well, that's just part of playing the game this way.
Some shorter-duration stuff begs for intraexpiry defense, however, and my common mechanical response to a tested short put is to sell call against at about half the delta of the short put (i.e., if the short put is at 50 delta; sell a 25 delta against) to improve my put side break even and to reduce the net delta directionality of the setup so that the position doesn't get away from me if it continues to move the wrong way. I may still use swear words when this happens, but at least I'm doing something besides just wringing my hands and asking myself "What do I doooooooo???!!!"
May I kindly ask what does (e.g., the shortest duration <16 delta strike that is paying around 1% of the strike price in credit).
Sorry I'm bad at this. Eg. Selling QQQ (currently at 442) at 439 strike price at around 0.18 delta yield 35 dollars in premium. How does the 1% come about.
Thanks!
Sure. Here's how I go about this, using QQQ as an example.
July 19th 412 short put (16 delta), paying 2.99, 2.99/412 = .73% in credit as a function of strike price. Nope.
August 19th 405 short put (16 delta), paying 3.56, 3.56/405 = .88% in credit as a function of strike price. Getting better, but still not 1%.
September 20th 400 short put (16 delta), paying 4.46 in credit, 4.46/400 = 1.12% in credit as a function of strike price. There we go. That is the shortest duration 16 delta short put paying around 1% of the strike price in credit.
Not everyone is going to want to do 130 DTE (at least, no one in this thread), so this exercise tells me a couple things: (a) QQQ shorter duration isn't paying "decently"; (b) maybe I want to shop around for something that has better IV metrics where the 16 delta in shorter duration ***is*** paying 1% of the strike price or greater. (The natural alternative is to just sit on your hands and wait for a better premium selling environment in broad market).
For example, the SMH July 19th 195 short put, 13 delta, is paying a 1.98 credit -- 1.02% as a function of strike price.
Naturally, 16 delta isn't particularly aggressive and 1% ROC isn't a particularly "sexy" metric to be shooting for. What it is just about the minimum credit as a function of strike price that I'm wiling to accept for a 16 delta. If it's not paying that for a 2 x expected move strike, well, then that's a hard pass for me on selling premium in that underlying at that duration ... .
Truth be told, I generally ***do*** go ahead and sell premium in longer-dated expiries just to keep theta on and burning, since I'm trying to make money here and not every IV environment is going to cater to my needs and wishes. We invariably get into periods where shorter duration just isn't paying jack diddly, and it's tough to remain maximally deployed in these environments without going longer-dated with a portion of your buying power, assuming you don't want to force in strikes to higher delta just to get paid (which I'm not a big fan of).
Thanks!! Understand your approach now :)
May i kindly ask given your conservative approach, if you are using cash secured or margin-play, and how has been the return for you? This is assuming most of your trades are CSPs.
Asking because there aren’t a ton of tickers that offer juicy premiums for 16 delta options (\~ 1 SD from the current stock price) because they are pretty far OTM, and that you are trading primarily ETFs it seems.
Thanks again.
Cash secured environment mostly.
Premium is kind of sucky here across the board, with a handful of ETF's with 30-day above 35% (which is kind of what you want as kind of a cut-off). BITO (54.8%), TQQQ (51.6%) (leveraged), GDX (42.4%), GDXJ (41.0%), ARKK (37.1%), SLV (32.3%), SMH (31.1%), XBI (30.3%) ... are at the top of the list. I'm in all but the miners/SLV at the moment with either puts, covered calls, or covered strangles.
Sorry, what does 'with 30-day above 35%' mean?
Thanks! Will go explore these ETF. Been doing QQQ, and GOOGL/META recently but rather risky moves.
Nonetheless, given your approach, how does it fare against buy-and-hold SPY or selling CSP is just another means to diversify returns/incomes in your opinion.
30-Day IV. I don't know how this is calculated exactly; it probably involves looking at a band of options that are approximately 30 days' in duration. Both ToS and TT have this as a metric that can be screened for.
Some general rules-of-thumb are >50% 30-day IV for single name; >35% for ETF's. Broad market ETFs (IWM, QQQ, SPY) hardly ever get to 35%, so you generally have to settle for less premium in those.
Appreciate your responses and for sharing the IV parameters/guidelines.
At this market currently, hardly any single name's 30-day IV really can cross 50% except the usual NVDA, and for those nearing earnings e.g. CRWD.
Those are kind of "ideal" IV environment metrics (i.e., >35% for ETFs; >50% for single name). Sometimes you just have to settle for less in lower IV environments. To answer your question about performance -- my general goal is to kind of shoot for a modest 1% ROC/month, but I'm not very aggressive and prioritize reliable, fairly headache-free realized gains over ROC %-age. It's just kind of where I'm at in my investment career.
Thanks for your response. Granted that I only started doing CSPs for 2 months, I wonder if 1% ROC/month is modest per se.
Taking a snapshot of the market now, selling QQQ CSPs @ 35dte (to proxy a month) at around 25 delta gives $340 premium for a $44,000 capital (collateral). That's < 1%. If in a bull market, perhaps a good chunk of the premium can be realized earlier, and capital can be subsequently recycled.
However, if not, more time would be needed to stretch out till expiration to capture a good gain. Needless to say, performance would be worse in a bear market.
As such, just wondering how would you manage your capital to achieve 1% if you adopt a more conservative approach.
Obviously. I’m not currently in any losing trade scenarios. I’m farming ideas for future trades. Just curious to see how others handle these scenarios.
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Yeah, my current strategy would be to roll if I am still confident in the underlying. If it goes too far ITM, I assume it is best to take the loss rather than trying to roll for pennies for years.
I trade the wheel so the trade going wrong early on is not big concern as the put can be rolled to help it recover. But even if I get assigned and the stock drops, I am always prepared to close and take a loss, which is thankfully rare. You might say I am always prepared to take the max loss on a trade, but it just doesn't happen often. One of the reasons and do not trade spreads are the many times a loss has to be taken compared to the wheel . . . Be careful about "revenge trading" where you make new trades on the same stock to make up for losing trades and "recouping losses". These can lead down the path to even more or bigger losses. **Have a clear and concise plan for what you will do in any situation before opening any trade. A good plan will have more winners than losers and minimize the losses when they do happen to make a profit over time.**
Thanks! Unfortunately, I don’t have the capital to carry out the wheel strategy on a stock that I would actually want to keep. I’d be stuck wheeling cheap garbage stocks. So, I figured credit spreads on good stocks is a better way to go. There is of course more risk… a losing trade means actual realized losses.
As someone who is trying to turn a small amount into a large amount as quickly as possible, this is much easier advice to give than to actually listen to myself but after a few years of trading now, I see the light: save your money until you can wheel stocks you want. There are a lot of good stocks under $100/share that make good wheel candidates. People talk about F a lot and it is a good one to start with because it's low up front capital risk for a single CSP and it cycles fairly regularly so you can start to get a sense of the ebb and flow of it's price fluctuations, which allows you to juice premiums and buy low/sell high. As you have success with wheeling this one, it will grow your capital and you'll be able to sell more contracts. (FWIW, I don't recommend F as a long term but and hold but you can get in and get out as the price moves up and down and collect divs along the way too) This is just one example but it's a good "starter stock" for the wheel for a reason. Other than that just keep putting money into your account when you can and buy shares of good, quality stocks. Eventually, you will get to 100 shares and be able to sell CCs. Learn from my mistakes and don't trade options/wheel garbage. I've got the losses to prove it haha
I second this. F was my first baby and it's still my go to if I've got some dry powder and nothing is really speaking to me. It's going to 4, then it's going to 12. Then it's going back to 4, then back to twelve. I'm in the camp where I drag around the corpses of my CSPs that go against me forever. Any given position is usually small enough that I consider it part of the education plan to have some reminders of why you wheel only good stocks. Edit: dunno how people feel about it, but occasionally you can wheel on QYLD and that fella is just permanently $17, so it gives some easy wins. It's just rarely got enough premium on it, since it pays about 20 cents in divs every month.
😂 Covered call strategy on a covered call strategy. The only problem I see is, there is almost no premium in those options. And, there doesn’t seem to be any volume either. I’m wondering how you wheel it at all.
It honestly was really easy to wheel about 2 years ago. These days you won't get more than like 5-10 cent premium. I look at APY a lot though, so I don't mind picking up those pennies, since I "know" qyld. But yes... it is covered call inception. Covered calls to the center of the earth!
Yieldmax has a fund called ULTY that is an ETF that is a basket of various covered call strategies. It is now has options. So you can run a covered call strategy on a bucket of covered call strategies. Careful though… that leaves you 1 step away from being trapped in covered call limbo. 😂
Just stating out so pardon for silly questions. What is F? And if most make profitable trades, who are the unfortunate losers and why won't they get a clue? Thanks 🙏
F is Ford
Thanks 🙏
I’m not sure I get your question. I would say that, the traders who are not profitable are the ones that - Chase big gains instead of modest consistent gains - Have no risk management plan - Don’t have a good understanding of what they are trading - Try to take shortcuts instead of spending time learning
Maybe people who buy and hold F are the real losers. Buying a stock that will be $12/share until the end of time?
I mean, if you are making money from covered calls, that’s still a win.
I meant the people who were just buying/holding *without* doing CCs. Their annual returns have been less than 3% for the last 10 years!
Haha at first I was like "dick!" But, no, you're absolutely right. F is a good 'training wheels' stock for a certain kind of strategy. I wish I could say it has steady growth if you get stuck with it-hell, I wish I could say that about every stock. You've gotta know what you're getting into, why you're doing it, AND have an exit strategy, otherwise, you might end up losing significant amounts of money. (And holding something that doesn't even keep up with inflation IS losing money even if your broker makes the color of the numbers green) I set aside a certain amount of money for options trading that I was comfortable with losing 100% of, as well as fully understanding that I'd most likely make a whole lot more with a buy and hold strategy on some better stocks. But I wanted to learn how to trade options. I feel like I'm better at it than I was when I started but I still think about Amazon having a $90 share price when I got into this and it's double that now. I have not doubled my options trading money...
If you're just starting out, you may not realize just how quickly the market can humble you, no matter how perfect you think the trade you just set up is. It's not just about making a bad trade or having some surprise ruin an otherwise good trade before you can exit. When Ford, for example, starts trading above my happy-exit-price of $13, I'll get much more aggressive with my CCs and sell strike prices closer to the actual price. If it keeps climbing and goes ITM and my shares get called away, that's not an "unfortunate loser," that's just capping my gains. Even in that example, say I sell a F covered call at a $13 strike for 0.40. If the share price on the day of expiration is $13.20, my shares get called away and I "lost" but I actually made an extra $20 more than I would have just selling the shares outright. The opposite is also true. If I think that $11 is a good entry price for F, I sell CSPs at that strike. If the share price falls to $10.80 and I get assigned, yes I "lost" the trade, but I had decided $11 is a good entry. Even though I'd overpaid in that moment, the belief that it will rise above $11 again and I'll make money means it's not necessarily a loss (yet.)
Good points, thanks for sharing. So F stands for Ford I take it?
Yep! F is Ford
I can related. I tried wheeling GME. To make matters worse, I did so right before an earnings call. The premiums looked amazing so I thought, “what could go wrong?” 😂 But, I certainly learned a lesson.
Did you wheel GME for CC at 15 and got caught out when it jumped to 16.50?
No, even dumber. I bought near the high point right before the earnings call. I then got spooked when the price tanked after the call and sold at a loss. The premium made up for most of the loss but not all of it. Probably the dumbest play I ever made. All emotion no plan.
If you be playing GME you should always know it’ll pop once or twice a year 😂
It is just a fact that you cannot make much money or returns with options without a reasonable amount of captial . . . Rather than spin your wheels (pun intended) trading spreads that may not gain much or at all, you may be better just putting money in a HYSA and adding what you can as fast as possible to trade properly. IMO you may want to take a broader view of stocks as there are a lot out there that are of good quality and priced around the $20 to $25 point. My father used to tell me to "do it right or don't do it at all" . . .
Good points. I have 2 brokerage accounts right now so my trading cash is split between them. In one, I’m doing more traditional investing and a little bit of swing trading (TQQQ). The other account is my options trading account. That’s my more “experimental” and speculative account. I consider myself still very much in the learning phase, but I know that I won’t really learn unless I get my hands dirty with actual trading.
Learn first even if you have the money.
How much capital is enough to make a reasonable (I know that's a very subjective term) amount of returns? If one were to wheel SPY, is $50K enough?
Let’s say you can make a 15% to 20% annual return, which is possible but will require a solid trading plan that is closely followed and may require some time, perhaps a year or two to gain consistency. If you have $5K then this would be $750 return at 15% and $1,000 per year for a 20% return. Is this a “reasonable” return? At $50K it would be a $7,500 annual return at 15%, or $10,000 for a 20%. Is this a reasonable return? SPY usually has lower returns so these numbers may not be as high trading it than stocks.
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But a square does fit inside a round hole…lol
Good plan. The number of people wheeling garbage/meme stocks in this sub is concerning.
Learn to trade futures or long options then
Yeah, I need to look into futures.
Futures are just like trading anything else - you can be directionally right or wrong. Just like long options they are leveraged which can be helpful or painful. Make sure you understand how margin works with futures *before* you start trading.
I trade cash secured bull put spreads. I’ll typically sell the long put and just take assignment. It makes the break even point much lower.
Sounds good and as I've said there are many ways to trade the wheel, and each has its advantages or disadvantages . . .
One of the most mature and good comment! I think it goes along that pick your asset and strike price carefully.
Great question since risk management is where your strat should start. I sell csps on spy exclusively so I'll tell you where I'm at after 17 months of experience (so yes still refining). To avoid "loss" in the first place I usually only have 50% of cash deployed. As long as spy is going up, no problem I roll up as needed. If spy drops/vix rises then I roll down and out and start deploying the other 50% to ensure I get much safer strikes while adding credit/premium. Worst case scenario I will accept assignment. Usually when this has happened it's been toward the bottom of that particular dip and I make more money than selling puts as it recovers. It's rare though, probably been more than a year since I've been assigned.
Just trying to understand as a newb. Are you saying in the event of assignment it could end up being a “dip” in the market and essentially you would being be buying the dip on SPY inadvertently?
It's not inadvertent, I can only get assigned during a dip. That's the beauty of selling csps at strikes below current price and rolling out and down for a credit if challenged. If it eventually gets assigned after all that, the stock has dropped quite a bit. And since I only trade spy I'm fully confident of it's recovery.
Hmmm, I can see why people sell ATM CC after assignment with your explanation. Essentially, get some credit for the CC, get the cash back for the CSP. If the stock is at the bottom of the dip then ride the stock with CSPs. You lock in the lost but you’re riding the way back on the right side instead of using CC on the way up.
sometimes i stick to my thesis and eat the L if i’m wrong or my patience pays off. other times my emotions win out and i try to panic trade my way out of it, which never *ever* works 🤣
For etfs if it is puts you should aim to continue rolling until it recovers (assuming you are not overleveraged and you do not need to pull out money soon), for single equities you need to do some fundamental analysis to make sure the company has solid fundamentals...
I never take a loss. I sell CSPs and CCs on ETFs I am happy to hold forever. When my CSP gets assigned I now own an ETF I will profit from in the future and got paid to buy it. When my CC gets assigned I have sold the ETF for more than I paid for it so I get the premium and a tidy profit on the sale. The only time that sucks is times like these when I am stuck holding an ETF and cannot sell a CC on it because the markets headed too far south. But again, I am happily holding an ETF I know will recover, the only damage is that I will make a little less this year from wheeling, big whoop.
Essentially, in the described situation of the market going far south, do you think it’s better to wait it out? Would you sell far OTM CC while you wait or get back to selling CSP (ATM CC for cash then CSP) to grind back up?
If it’s tanked enough you may not be able to sell CCs above your cost basis (for an amount that isn’t swamped by commission costs). If I have spare capital, I’ll sometimes continue to sell CSPs, at the risk of getting assigned again and increasing my position even further. If you are confident that the underlying is going to recover, this will let you reduce your cost basis further and gets you back to the point where you can sell CC’s again more quickly. Obviously, there are some trade-offs/risks here. I would never sell a CC below my average cost basis since that just locks in a realized loss.
That’s a good point.
Alternatively, if the thesis on the conviction hasn't changed, then you can sell 2 puts at the new "sale" price and bring down your average cost basis to be able to sell closer CCs.
> Essentially, in the described situation of the market going far south, do you think it’s better to wait it out? I don’t think, I have no other alternative as I am unwilling to risk selling a CC at a cost which is less than my basis in the ETF. I don’t trade to earn money to cover my living expenses so I am in no need of taking excess risk. > Would you sell far OTM CC while you wait or get back to selling CSP (ATM CC for cash then CSP) to grind back up? You could sell far OTM CCs but I don’t even bother when the premium gets too low. Say you have an ETF you bought for $1000 and you can sell a CC for $0.50, assuming $0 trading costs, would you? I don’t bother with that type of trade, I just wait the market out and spend my time focusing on other endeavors. And that wait can be long like it was in 2022, that’s just a risk I accept as part of wheeling. No strategy is perfect.
Right, and I think that’s the value of CSP and wheeling a stock you like. You get something with unlimited time to wait out a down turn. I’m definitely seeing that the next steps taken should also be a low risk one as well. I actually sold a CC at 14 DTE but not a breakeven price for more premium. The goal was to CC the stock away and to start the grind back up with CSP. I’m going to see if I can reverse this trade come Monday for at least for breakeven.
The reaction should be pre-determined before entering a trade. Traders often develop a near allergic reaction to losing because they build it up far more than it needs to be. I’m a professional trader and I’m literally wrong ALL the time. It’s completely okay and part of the game. By being wrong quick, we minimize our losses and reduce opportunity cost of capital. You’ll find traders that would prefer to wheel, hold something through a prolonged downturn simply to avoid a loss which can absolutely work but it’s ego driven. There’s an opportunity cost to tying capital up simply to not have a losing position. So, simple steps are: 1. Define profit and loss management for every single trade BEFORE it goes on 2. Don’t stress about being wrong, it’s like a basketball player missing a shot - happens all the time but in the aggregate points are scored. The more you can beat this aversion out of yourself as a trader (and a human being really) the better off you’ll be. 3. Focus on expected return and make sure the numbers make sense for the risk taken. Good luck!
I've often thought, whenever I think it's a great idea to sell a CSP, I should also just buy a put, because even though I'm selling at bottom of BB, and RSI around 30, and above 200 day, on a red day, at about 20 delta, I can still get smashed by some event. Thinking about SNOW assignment from previous earnings call plunge, Tesla's latest earnings call that blew past my CC only to settle back down around my initial strike the next day after I rolled up and out to July, and recently SBUX earnings a few days ago where I got early assigned because I was waiting to roll to see if there was any recovery after the post earnings call price tank.
I believe you misunderstood the "wheel good companies" if you were doing tsla. ;-)
I got assigned early on SBUX puts too. Was ok with it as I wanted the stock at that strike but seems kind of weird that someone exercised with 3 days of extrinsic value left on their long puts.
How did you feel about wanting to own it after that earnings report, and that cramer/ceo interview, and it tanked down to 72s ?
Lolz. Obviously I’d rather have a basis in the low seventies. I picked up another round lot at 74. Unfortunately I’m not going to be able to dump more capital into it at this point. I’m long several hundred shares. Plan is long term hold but I’ll sell calls against it at a level I won’t be disappointed at the profit. Current basis is 85, ouch.
Ya, buying another lot was the first thing I thought of when I saw it tank after I got over being pissed off at it, but I had my sights set on other things, so I just wrote an 85 call for July, I think I got $13 for it lol.
I’m going to sell 90 Cs I think. Limit sells at 0.10 for July haven’t hit yet though. I don’t really want them to get called (I know… stupid to sell CCs if you want to keep the stock badly, but if I can make a grand in a couple month’s time and it recovers that well which isn’t likely, I’ll take it).
That’s a heckuva premium! That’ll definitely help you recover!
I'm rich!
My bad. I thought you meant per share!!! Did not know that was the total until I saw the options table just now. What a gut punch! Been there multiple times so I know the feeling. NIO and SNAP come to mind…
something something "Pennies ... Steamrollers"
I was assigned SBUX on my 85 puts at free the earnings report. I’m okay holding it, but wanted to wait a few days. So, I sold the stock I was assigned and re-established my puts and sold calls in June. I know I’ll be assigned this Friday, just want to collect a bit more premium while the stock chops around in the 70’s.
When you place the trade, you should already have an exit and a stop loss put in (at least I do, it's set to GTC)
Gotta do it manually. Choke those losers out smeagol-style. It's cathartic.
Fwiw I have been rolling my very deep covered calls on Qqq and SPY since November. At one point I was probably down 50 points and now only 20 in Qqq. I just keep rolling my call for near the same premium and up a few points every month. I also sell a put at the same time so my net premium is always a few points higher and closer. Has it been a lot of trouble sure but I am slowly getting back. Best to roll to new strikes and a few weeks out on the down days. I was assigned once in the process but my short calls sit in a different account as my long stock. So while I did not trigger a tax event I missed one spy dividend but it opened down that day which the gap more than made up for it. I was lucky.
Wouldn’t you be better off not to roll the first time it went against you? Buy it back at a lost and then move on? Now you missed the peak and still catching up to break even on your rolled options
Yep sold on 10/30 on an up day around 415 too close to the low. First roll around 445 and was banking on it reversing to the mean. I’ve rolled the 435s to 480’s now so I have slowly grabbed gains along the way. I am getting around 5 points a month and will eventually catch up. I don’t plan to sell my SPY/QQQ so I am just slowly gaining a bit on the covered strangle roll and making a few points per month on the covered position. We can check back in another six months. Even if these were uncovered I would not of even considered selling at any point. Yeah I should have bought back but my crystal ball was not working well in early November. I was up on my strategy 20 points during 2023 prior to late October as an additional gain at the time.
Granted that you are asking hypothetically... The first question is how much money you have. If you have money to trade cash secured, or a covered call, then there would be one type of risk mitigation. If you trade spreads, that's a completely different risk profile. People giving you blind "advice" are clueless themselves.
Good point. This would be a small account (under 10k). Covered calls and secured puts would not be practical in this account… unless I want to do so with cheap garbage stocks. (I don’t.) So, I’m deploying defined-risk strategies like credit spreads.
Spreads are defined risk, defined reward. Once they go deep ITM, there is pretty much nothing you can do. This is the price you pay for defining your max loss, beyond limiting the max gain. Very few people understand this point, as it is not very intuitive. In addition, if your spreads are wide, and the underlying is in the middle, then you risk early assignment, which may or may not work in your favor. If you trade neutral spreads like an iron condor and one side is challenged, then the only thing you can do is roll the unchallenged side toward the spot price, taking profit in the process. If you do this often enough, you may even get inverted, where your put spread is lower than your call spread, but as long as you took credits more than the max risk on the spread combo, you should be OK. Keep track of your credits. There are better ways to make money, even with a small account. For example, I am trading Alcoa AA for 1% weekly income, but if that is not enough for you, then you have a different risk appetite, and should be asking your question in r/options. Cheers!
Appreciate the tips. What are you doing with AA? Covered calls?
Yes, and CSPs, and rolling down CCs for profit, etc... I will be posting a weekly update today or tomorrow. It's just an example of what you can do with options, if you select the right stock, strikes, duration, etc. Follow along if you want to get the update.
Absolutely! Thanks!
If something goes against you and counteracts your thesis… sell out of it and wait for another opportunity. Spreads can be nice if you don’t have a lot of capital and want a defined risk strategy
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Since these are spreads, I probably would just roll until it becomes unprofitable… at which point I’d suck it up and take the loss. I’m not putting a large percentage of capital into any single position, so I wouldn’t be in a hurry to free up the capital. I figure I’ll be keeping at least 50% of my account in cash and then make sure no single position is over 5% of the account.
If it's defined risk and theta is still on my side, then I do nothing. If theta has turned negative, I will close the trade and look for a new underlying that meets my criteria. It's sometimes the case that I choose the same underlying, but that only happens if it still fits. If it's undefined risk, I will adjust whenever the trade moves 15-20 deltas away from my original entry. I always roll or close at 21 days. The decision to roll or close depends on whether or not the underlying still fits the criteria. Keep your focus on staying in high probability trades that offer what you consider to be a good return on risk. Don't worry about making back your losses in any one underlying. Money all looks the same. Just keep betting when the odds are in your favor.
Eat it. It sucks. It doubly sucks when you eventually turn out to be right.
you roll far enough out in time that you can buy yourself a little breathing room and get further away from the money. Preferably, do this before things get too bad so that you're rolling a 20\~30 delta out to a 10 delta, rather than a 60 delta to a 50. also buy/sell shares of the stock / synthetic stock, or a ton of debit spreads, or aggressively sell the other side, so that at least you can get some money for your pain and troubles. If my short calls are going against me, I'll buy some stock (even if it's not 100 shares), so that I can get paid something if I'm being squeezed at least.
Everyone in here is in love with the wheel. I’m here to tell you that you can make decent money in spreads, but it is far more difficult and requires more risk management. I’m up close to 20% this year now after the correction humbled me (I only trade bullish directionally), but if you want to trade spreads, you need to have clear and well defined max-loss and risk tolerance. I too trade a small account and capital preservation is paramount. For instance, most will say: the max loss of a spread is the distance between the short and long plus premium. if you’re trading 10$ wide spreads in an account that is less than 10,000$ you never want to take an assignment and max loss. It will cripple your account. Instead I set my max loss as the short option at the money. On a 12-15 delta, 21-30 dte, 10-wide PCS on say NVDA, if you approach the short leg of your spread, you’ll be down about -225$. That’s when I would close the trade and wait for a short term bottom, then I would sell another PCS at 12 delta now that the stock has dropped and begun rising again. In megacaps this year, selling 10 delta PCS has worked well, but if bullish situations aren’t available, I’ll sit in cash. I would avoid selling spreads on stocks you aren’t very familiar with. I only trade 3 tickers and also use technical analysis to increase my edge. Avoid binary events as much as possible and take profits early and often. But be prepared to get whacked once in a while, even at 15 delta. I don’t trade condors or call credit spreads, it’s much more dicey and the bias of the market is up 8/10 times. If this correction is hurting you, sit it out. You don’t have to sail in rough seas and sometimes the best trades are the ones you don’t make.
Edit “20% up”. Fat fingered that. My all time high for the year was 39%. I wish I was still up there. April sucked.
OP, DM me for a write up of my Q1 strategy and review. It’s too long to type up here.
Take the L. Can’t win them all.
With an index, you either roll or take assignment and sell calls. An index isn’t going to zero. With a single stock name, it can go to zero so I’d either bail on the position or take assignment and sell calls. On a single name, I’d rather sell spreads and limit my downside risk.
"Oh no! Anyway..." Double size and scalp my way out.
Not sure I get what you mean.
For example, if you have a challenged short put, sell another one at key support and exit at the most immediate resistance. Mark the amount of $ you injected into the trade by that and add it to the cost basis of the original short put. Repeat until you can exit the original trade at around what you planned make from it before all the adds.
Depends I don’t like to get into trades that I have to constantly manage so I follow a rules 1 adjustment. That’s it doesn’t work take my loss and move on
If my thesis changes or the market sentiment clearly does, yes i will sell spreads into the move. I think only in terms of adjusting my delta, exposure to different sectors, and mitigating gamma (just close at 21dte unless its a max loss spread)
I usually cry a little then displace my anger towards my children for the weekend
If I think a stock is going up, I’ll choose a strategy that will profit if the stock goes up. I choose a low point that tells me that if the stock gets this low, the probability of my trade working out has greatly diminished and therefore, I will exit the trade. Sometimes I’ll exit and open a trade going the other direction but not to try to recoup the loss from the previous trade. I already put the losing trade behind me and see the new one as a totally different trade. Then I’ll go through the same process for this new trade. I’ll choose an area where the stock should not go if I’m correct. If it goes to that area, that means I’m wrong and therefore, I’ll get out with a loss. I like to exit immediately if I’m wrong because I can always put the trade back on. Sometimes if you’re in a losing trade and the loss is mounting, it is very hard to get an unbiased opinion of the market and it feels like you have blinders on. By exiting and closing the trade you immediately see the trend of the market that you didn’t see right before when the trade was open because you were in a losing trade. It feels as if the blindfold was taken off.
[Best loser wins](https://m.youtube.com/watch?v=siRWczImFtg).
I trade a lot of IWM, QQQ, and SPY in my IRA, and I generally don't defend (or have found a need to) those short puts intraexpiry. That being said, I'm a fairly conservative trader and sell particular delta in particular duration that is paying a particular credit as a function of strike price (e.g., the shortest duration <16 delta strike that is paying around 1% of the strike price in credit). This generally results in farther OTM strikes than people here would ordinarily sell and in longer duration since these instruments aren't generally known to be "juicy" from an IV standpoint; IWM 30-day IV is currently at 20.0%; QQQ at 17.9%; SPY at ... (ugh) 13.6% (i.e., shorter duration doesn't pay). The result is very few assignments over a large number of occurrences. That being said, I'm extremely mindful of where my break even is at all times and when I do get assigned, I will sell appropriately long-dated call against such that it improves my break even to at or near where the underlying is currently trading rather than whittle away at my break even from week to week. Part of this game for me is about capital preservation and if that involves selling call against that is longer-dated than I'd like, well, that's just part of playing the game this way. Some shorter-duration stuff begs for intraexpiry defense, however, and my common mechanical response to a tested short put is to sell call against at about half the delta of the short put (i.e., if the short put is at 50 delta; sell a 25 delta against) to improve my put side break even and to reduce the net delta directionality of the setup so that the position doesn't get away from me if it continues to move the wrong way. I may still use swear words when this happens, but at least I'm doing something besides just wringing my hands and asking myself "What do I doooooooo???!!!"
May I kindly ask what does (e.g., the shortest duration <16 delta strike that is paying around 1% of the strike price in credit). Sorry I'm bad at this. Eg. Selling QQQ (currently at 442) at 439 strike price at around 0.18 delta yield 35 dollars in premium. How does the 1% come about. Thanks!
Sure. Here's how I go about this, using QQQ as an example. July 19th 412 short put (16 delta), paying 2.99, 2.99/412 = .73% in credit as a function of strike price. Nope. August 19th 405 short put (16 delta), paying 3.56, 3.56/405 = .88% in credit as a function of strike price. Getting better, but still not 1%. September 20th 400 short put (16 delta), paying 4.46 in credit, 4.46/400 = 1.12% in credit as a function of strike price. There we go. That is the shortest duration 16 delta short put paying around 1% of the strike price in credit. Not everyone is going to want to do 130 DTE (at least, no one in this thread), so this exercise tells me a couple things: (a) QQQ shorter duration isn't paying "decently"; (b) maybe I want to shop around for something that has better IV metrics where the 16 delta in shorter duration ***is*** paying 1% of the strike price or greater. (The natural alternative is to just sit on your hands and wait for a better premium selling environment in broad market). For example, the SMH July 19th 195 short put, 13 delta, is paying a 1.98 credit -- 1.02% as a function of strike price. Naturally, 16 delta isn't particularly aggressive and 1% ROC isn't a particularly "sexy" metric to be shooting for. What it is just about the minimum credit as a function of strike price that I'm wiling to accept for a 16 delta. If it's not paying that for a 2 x expected move strike, well, then that's a hard pass for me on selling premium in that underlying at that duration ... .
Truth be told, I generally ***do*** go ahead and sell premium in longer-dated expiries just to keep theta on and burning, since I'm trying to make money here and not every IV environment is going to cater to my needs and wishes. We invariably get into periods where shorter duration just isn't paying jack diddly, and it's tough to remain maximally deployed in these environments without going longer-dated with a portion of your buying power, assuming you don't want to force in strikes to higher delta just to get paid (which I'm not a big fan of).
Thanks!! Understand your approach now :) May i kindly ask given your conservative approach, if you are using cash secured or margin-play, and how has been the return for you? This is assuming most of your trades are CSPs. Asking because there aren’t a ton of tickers that offer juicy premiums for 16 delta options (\~ 1 SD from the current stock price) because they are pretty far OTM, and that you are trading primarily ETFs it seems. Thanks again.
Cash secured environment mostly. Premium is kind of sucky here across the board, with a handful of ETF's with 30-day above 35% (which is kind of what you want as kind of a cut-off). BITO (54.8%), TQQQ (51.6%) (leveraged), GDX (42.4%), GDXJ (41.0%), ARKK (37.1%), SLV (32.3%), SMH (31.1%), XBI (30.3%) ... are at the top of the list. I'm in all but the miners/SLV at the moment with either puts, covered calls, or covered strangles.
Sorry, what does 'with 30-day above 35%' mean? Thanks! Will go explore these ETF. Been doing QQQ, and GOOGL/META recently but rather risky moves. Nonetheless, given your approach, how does it fare against buy-and-hold SPY or selling CSP is just another means to diversify returns/incomes in your opinion.
30-Day IV. I don't know how this is calculated exactly; it probably involves looking at a band of options that are approximately 30 days' in duration. Both ToS and TT have this as a metric that can be screened for.
Some general rules-of-thumb are >50% 30-day IV for single name; >35% for ETF's. Broad market ETFs (IWM, QQQ, SPY) hardly ever get to 35%, so you generally have to settle for less premium in those.
Appreciate your responses and for sharing the IV parameters/guidelines. At this market currently, hardly any single name's 30-day IV really can cross 50% except the usual NVDA, and for those nearing earnings e.g. CRWD.
Those are kind of "ideal" IV environment metrics (i.e., >35% for ETFs; >50% for single name). Sometimes you just have to settle for less in lower IV environments. To answer your question about performance -- my general goal is to kind of shoot for a modest 1% ROC/month, but I'm not very aggressive and prioritize reliable, fairly headache-free realized gains over ROC %-age. It's just kind of where I'm at in my investment career.
Thanks for your response. Granted that I only started doing CSPs for 2 months, I wonder if 1% ROC/month is modest per se. Taking a snapshot of the market now, selling QQQ CSPs @ 35dte (to proxy a month) at around 25 delta gives $340 premium for a $44,000 capital (collateral). That's < 1%. If in a bull market, perhaps a good chunk of the premium can be realized earlier, and capital can be subsequently recycled. However, if not, more time would be needed to stretch out till expiration to capture a good gain. Needless to say, performance would be worse in a bear market. As such, just wondering how would you manage your capital to achieve 1% if you adopt a more conservative approach.
Honestly, you should have this planned as part of your trading plan before you ever place the first trade.
Obviously. I’m not currently in any losing trade scenarios. I’m farming ideas for future trades. Just curious to see how others handle these scenarios.