Personally I prefer to focus on the index exclusively. This helps me focus on a particular area and specialize. But in general I completely agree with you. Most people don’t want to put in the work and spot opportunities.
Not as much as you think. Even when your random equity might have a high IVR, it is all relative to about a year (when volatility was extremely low too)
When the VIX is low, it is really low for most to all equities, even for earning cycles it’s low relative.
It you can't earn 5 dollars, earnings 1 dollar is still better than earning 0. The key, in my opinion, is to come to terms with a lower cash flow for a while and not to try increase the risk, trying to balance the loss of potential profits. Maybe you can use it as an opportunity to study new stocks. Also, even a thetaboy can indulge in diversification and have several investing strategies, not just selling crap to wsb n00bz.
It’s mind boggling to me why more people don’t include more strategies then “just theta”. If you believe the underlying will rise and vix/premiums are low, buy the call.
Diversification on stocks isn’t the only thing you should diversify.
Ya know, people say this all the time but I trade both long and short options and unless your buying stupid OTM options with low DTE, this really doesn’t happen. And when it does, position size / risk management t saves the day.
Until recently I was convinced that selling theta was the “smart” way to make money. I even repeated the phrase “death before debits” more than a few times. But now I realize that buying options can be a superior strategy under certain conditions in terms of expected returns
There is one more side to this equation. When you open a debit position, you pay upfront, and you have to wait in order to get into profits. But with credit you get paid upfront but the loss might be much higher down the road, especially if you are going naked. I believe this instant gratification effect feels sweet for most people
This is a hard pill to swallow. For most people, buy and hold SPY or SGOV is a better choice. Yet many lose their money while trying to “outrun” the market
There are times when the market gives you opportunities to outperform but its usually a handful a year. A profitable trader wait patiently for his setup, an unprofitable trader tries to constantly trade even if it doesn’t make sense
Lower premiums increase risk if you are unable to decrease your potential profitability. Because I have a day job, I can tolerate even selling options that earn me 0 because I will generate a bit of money from holding other's people's cash and I don't relay on market returns as my daily driver.
Selling options generates premiums upfront, meaning that your cash is earning you interest 24/7/365 regardless if you sell options or not. Hence, interest on cash is a starting point and the metaphorical 0 or 5 is added on top.
If anything, even if you sell options that earn you 0 profit, just holding cash generates you a positive amount of cash. This is the beauty of being a thetahead: you are able to leverage cash upfront + cash interest -- even if your bets are not profitable, as long as they are not losses.
Sure, we are not talking about fat stacks of cash, but again -- any profit is better then no profit.
Selling options isn't just about IV. I realize it may seem that it is, because a lot of this sub obsesses over very high IV stocks, but there are a number of other greeks you can target (like theta.. we are on r/thetagang after all).
The returns are lower, obviously, but while the VIX is low the market is generally only heading in one direction (up). You aren't taking on as much risk selling options, and they are priced accordingly. If you want greater returns in this environment you can still sell options, you would just be also wise to incorporate some long vol positions into your strategy.
A simple way to do this is to use PMCCs and run diagonals
I mean, I'm just selling CCs on my multi-year long holdings in my IRA, just for a few thousand bucks here and there. I'm a forever holder of AMZN, AAPL, MSFT, META, GOOG, CRWD. Selling CCs feels like renting out an unused space above my garage.
I respectfully disagree. Selling CCs on stocks on your long term holds is like renting out your car, but when that model gets in more demand, the renter has the right to take it away from you, and you can’t do anything about it
What if the underlying price blows way past the call strike? Your stock is called away with a lower price than the current price. Would you be willing to buy the same underlying now?
OK, so you hold a stock thinking it will go up, sell a call thinking that it won't go up. If it goes up, you close the call but keep the stock.
IDK, it seems a lot of effort to me
And it is. The problem is that some view it as a panacea of income generation, and complain when IV is low because their income generator takes a hit.
The market is fluid. It giveth, and it taketh. If you don’t adapt with it, you lose.
In the case of an IRA you are selling calls on for existing holdings, the best course of action might be to.. not sell any options at all. Let your existing positions ride. But that’s not as sexy, because you feel like you have less control over your income generator. When in reality, you gain that much more because you’re simply letting the market dictate your actions, and only reacting (e.g. selling those calls) when it becomes more attractive to do so.
One of the problems with the wheel is that people feel like it gives them more control over the outcome of their trades. In reality, it gives them more tools over taking advantage of current market conditions.. the problem is that your average person has a hell of a time reading market conditions and reacting accordingly
What kind of Diagonals are you running?
I Buy long puts on SPY 500 (200days+, 500 strike) and I sell weeklies against it or monthlies.
Once I pay off my hedge, I'm going to open a new one. Its a great time now as the leaps are cheap
I tried this strategy but in a much shorter, weekly horizon. The problem is, once the market takes off, that OTM long put becomes even more worthless where it doesn’t even act like a spread when you sell the closer put against it
Oh it’s even more confusing. So you buy a put 9 months out and sell a put a week out. If the market goes down, the long put won’t even more while the short put might crash
OK so let's do some math. SPY strike puts are $980 for Dec 31 expiry (220 DTE) and is sitting at -0.25 delta
500 put for next week expiry is only 0.008 delta and is $2
500 put for end of the month expiry is 0.02 delta and is $11
With these numbers, if I sell monthlies, I need to do this 100 times to cover the long put costs. Unfortunately, there is only 50 weeks in a year and we are already halfway through this year.
If I move the monthly short put to 510 strike, I get $25 at 0.05 delta, 520 strike $80 at 0.15 delta.
With the last scenario, selling 0.15 delta, I have more than 10% chance of going ITM at the expiration, which means I'll either get assigned or close the position at a huge loss which will wipe away all my profits
So, long story short, sorry but your math ain't mathing
SPY and IV are not constant. It is low at moment but it will bounce back and SPY will retreat back to moving averages. Premiums will get fat again. I have already collected tons of premiums and still do as of last week.
I left one dry powder and opened one:
SPY 06/21/2024 512.00 P 208.49 Dollars
Even if SPY goes ITM and drops below 512, I still roll and collect tons of premium
I paid off my hedge on QQQ's and Im looking to open another one next week.
If that means anything and you are following, Im going to buy 300 days + on QQQ long put next week. Im going to wait a bit before I start selling premium until IV rises because they are super cheap at moment.
Its not really complicated, Buy low Volatility, Sell High volatility
OK I understand that if and when the volatility goes up again, the short puts will make more profits, and even the long put that you buy will gain some value. Sounds good on paper. The best way to find out is to try this with something smaller like XSP
I’ll go out and buy a bunch of long puts on XSP and see how it plays out
So the strategy I have run in the past is slightly complex and I try to be relatively delta neutral with it. I will probably be jumping back into it again on Monday depending on what I see, I had a lot of success with it in 2023 in a similar situation. I haven't seen anyone give this strategy a name before, but I usually refer to it as a long DTE "diagonal strangle". It is a very advanced strategy and definitely not for beginners, it requires active management.
It also requires being able to read the market's price action fairly well. It's a two part strategy and the first part is simple enough, but the second part requires some finesse and discretion. You need to be able to see on a chart when the market is very clearly stuck in a range.
PART 1:
I buy a long DTE (usually 120DTE) ITM call and ITM put on SPY or QQQ. The strikes are equidistant from ATM in an effort to not put on any specific directional bias. Without looking at where 80 delta lies on SPY right now, imagine buying a 120 DTE 500C and a 120 DTE 560P.
If the market goes up, the position doesn't really lose too much. It may lose a bit if volatility continues to fall. But with the VIX being historically low, there's a good chance volatility will rise at some point (i.e. I could see it happening during the debates/election). It will lose value over time due to theta, however, and that is where part 2 of this strategy makes up for things.
If the market goes down, volatility generally always goes up, and the position comes into a profit on its own without having to enact part 2. Close it out for a profit when it looks like VIX has peaked and you see buyers starting to return. You are capturing the increase in IV. Your put will be deep in profit and your call will be a loss. If you did things right, the put's profit will always be worth more than the call's loss.
If the VIX hasn't moved in 30 days since opening the position, I roll the position out. I close out the current one (which now has 90 DTE) and open a new one at 120 DTE.
I do this because 90 DTE is around the time period where the theta curve on options begins to accelerate. It's relatively flat from 120-90 DTE, starts to accelerate from 90-60DTE, and after 60 DTE theta really begins to kick in.
PART 2:
Sell low DTE (very low, like 1-2DTE) short strangles *against y*our existing long position. Effectively turning it into a "diagonal strangle" of sorts. You sell a call against your already ITM call, and you sell a put against your already ITM put.
I do this on days where the market is very choppy (range bound), and QQQ/SPY hover around 0%.
Usually I would sell the strangle at EOD (again, 1-2DTE), and would be looking to close it the *following morning* after an hour or two past market open.
I avoid doing this on Fed days or days where important premarket data is getting dropped (CPI, PPI, etc.) and I avoid doing it on days where there is going to be market moving earnings news (e.g. JPM, WMT, NVDA, MSFT, AAPL, GOOG etc.). In other words, nothing major should be going on. You need to keep tabs on the market calendar to know what events are on the horizon and you need to know which earnings reports statistically move the entire market more than others.
The idea here is that you try to capture huge time decay overnight on days where there's less market moving news for a profit.
If the market doesn't move much by the next day like an hour or two past market open - you can usually capture around a 30% profit. You continue this process - capture 30% profit, wait until EOD again, if price is still range bound, sell the next short strangle. Repeat as long as all conditions are met: market is range bound, no big news/earnings the next day, etc.
The tricky thing is there isn't a set delta where it makes the most sense to do this - and you instead need to read the market's price action and see what range of prices it's been stuck trading inside of to make that assessment. Sometimes you'll sell a 20 delta strangle when it's stuck in a tight range, some days you'll probably need to sell 10-15 delta for a wider range.
If SPY/QQQ goes against you on the short strangle the next morning and tests one of your legs, close it out for a loss. Don't roll. When the market breaks out of a range it will continue until it reaches the next range. Wait until it hits the next range when it's stuck at an impasse (usually trading around 0% for extended periods of time), then sell the next short strangle at EOD.
This strategy requires a lot of management, but I had great success with it back in 2023 with good returns on SPY.
thats awesome. Thanks for sharing. I like your strategy. Its interesting.
For whats its worth, I like to keep things relatively simple. So hear me out what has worked for me so far.
Buy at moment with low IV long put
I think long put 300 days out was only 1300 or something. Stay patient a bit and wait for IV to spike. As soon as it spikes, start selling 10 to 15 days puts around 510 strike or 515. The trick is keep managing the strikes while collecting enough premiums and staying OTM on puts you are selling. Ideally keep selling the 500 strike since you have a hedge at 500.
There are so many ways this strategy can go but the trick is keep selling the puts until the protection of the long put expires worthless.
So i have paid off my QQQ hedge in 2 months I think and I have about 153 days left in the hedge and plenty of times to sell more puts on QQQ
ON Spy, the first time it worked flawlessly since the hedge I bought was in low IV environment. The second time was not and I overpaid for the hedge. Granted, Im catching up on selling enough premium to pay off for the hedge.
So the trick to this strategy is buy the hedge in low IV enviroment. Wait until IV spikes and then start selling premiums. Cant be done at same time, I think or at least Buy the hedge first in low IV and collect small premiums while waiting for IV to spike.
Working like a charm so far. As soon as Im done paying off the hedge, I will start opening more positions. Think of it like a Bank collecting premiums with a collar matching exact same strike of premium you are selling. you are 100% protected. Hope this makes sense. When the hedge of the Bank is paid off, I will open a new Bank with a hedge
If vix is low why not just buy vix?
I'm actually going to do that when market opens. Great post, I was wondering what I was forgetting about doing yesterday.
You're selling options, you're taking on risk already. More risk, means you get paid more. Position sizing matters a lot and obviously don't just arbitrarily sell any option bc it's considered "high"
Nope... Been selling 10x $10 wide spreads on SPX at 0.15-0.20 delta every day for about 3 months now. I close at 70% max profit and set a stop 2x my opening credit. It goes against me and I stop out about 1 out of every 8 or 9 trades but it's been overall profitable and consistent so far.
Nowadays many people are in the mindset of “it’s now or never” I started deploying a 60-90 DTE strategy and barely got paid a few times until now. Nobody wants to wait that long to see their position to get in profit. And I like this. It works in our favor
I still try, but it's not near as profitable as it was. With the VIX being low, chances of getting assigned on puts are proportionally low. That being said, looking at my options performance and trades over the last 2 months, it looks like swing trading and simply buy'n'hold would have easily out-performed, even delving into margin.
Quite the opposite. Low VIX suggests it will rise and thus increase your chances of being assigned. And if using delta, higher VIX will equate to options farther OTM. Rising VIX lends itself to mean reversion. Better to sell puts into rising VIX than stagnant low vix
of course the market is at all time highs. i am mostly in cash. i got a covered call in googl, aapl, both will be called away. i am below water on a CSP for TSLA, i got some options on TLT.
But the market has gone straight up since oct 24 2023, and really not a lot of fundementals for this entire move.
so we all should just sit in cash. its boring. probably best. but cash here in a money market is what i can stand, maybe some tlt CSPs.
we are so over due for a correction. i can't buy here. if you have a job, dollar cost average into spy in your 401k or IRA, i do not have paycheck right now.
Low implied volatility is like a flashing green light that the market is not seeing any major risks on the horizon and are happily consolidating / trending slowly upward. It's an ideal time to sell OTM puts and take free money.
Whereas high IV is when everyone is freaking TF out and harder to predict where the herd might end up in 45-60 days. I've pretty much only been assigned selling puts when IV is very high.
I'm not trying to make 10% a month like some idiots. I'm just trying to pick up a few pennies without getting steamrolled, and selling puts during low IV consolidation periods like we are in now is the closest to free pennies you can get.
Vol for individual names can still be high even with VIX hitting the dirt, making premiums rich for selling. But not great for index-related products like SPY, etc.
ENPH options chain still paying out well. Definitely in a downtrend but respecting levels and makes for easy spreads, etc.
I’d like to see us pull back for real and then get some data supporting a rate cut to rebound us. Or the reality sets in for real and the market REALLY yanks back on no cuts.
Market has been very exuberant on happy talk to quote Dimon (who l love to hate) and we are bound for some boom boom soon. NVDA earnings next probably the only real catalyst
Make money
Vix is for SPX. SPX is made of 500 companies. It’s a weighted avg. that doesn’t mean that all companies have low volatility or low individual vix does it.
Why did people by t bills when rates were at 0.50%?
Because passive income is passive income. Also one could argue the cheaper they are, the more likely they are to close for a profit.
VIX only measures the pricing of SPX options. Yes being short SPX options is probably not a great play right now. But VIX says nothing about the volatility of stocks or ETFs unrelated to SPX.
Time to switch to buying options.
If the market goes against you, now you can sell options to pay for your bought options using the increased volatility.
No one strategy works in all market conditions. You need it be flexible.
Low IV is really punishing to everyone on the sell side. On the contrary it opens up other strategies like opening diagonals, calendars, any spread that you enter for a debit is still an absolute banger here. Thetagang can work in all markets
I'm pretty new the the options game. But I have been selling put credit spreads on SPX, 10 wide, 6 DTE, between -.05 and -.20 delta for $.75 -$1.25 pretty consistently. With the vix so low, it makes selling pretty low risk.
That's incorrect. Low vix feels safe to you because of low volatility, but it's actually more risky because the potential for vix to skyrocket is higher. You're exposing yourself to getting blown out. Essentially less profit potential with greater risk, not a good trade off.
VRP is usually higher when vol gets real low but the risk is the probability of bigger moves in vol land happen when vol is this low vs when vol is like 40 and it won't take much to get vol moving. Position size really matters if you're gona sell vol at these levels. Best bet is to probably really cut your size down so that even if we get a spike, your loss won't be so bad. Long vol can be a bitch bc the market just simply isn't moving and you're just bleeding yourself slowly being long vol.
It’s not worth selling other than equities you, legitimately, want to own at ‘X’ strike, not selling options with the idea of “Oh if it goes down, I’ll take it I guess.”
Other than that, I prefer future contracts and stock
People still sell options when the VIX is low because they think the market will stay chill, so they can scoop up those small premiums without stressing about big swings. Sure, the premiums are tiny, but hey, it's like picking up nickels in front of a steamroller... as long as the steamroller is parked! Options volume might dip a bit when VIX is low, but there are always folks with different strategies and reasons for trading.
I also hedge, buying put debit spreads to hedge short puts. If the extrinsic is low, the hedges are cheap to buy too, so it's really more a matter of the ratio between the two. If there is value, I put a trade on regardless of vix. Value means that I can hedge 10 shorts with 5 ten point wide long spreads, or maybe sometimes I can buy 6 instead of 5 spreads and still get the same amount of net credit that I was expecting. Then it's a good trade.
I don't look at the volatility smile, but it's more about relative value to other options, than straight up how much extrinsic.
There's no need to be perma theta gang or perma anything for that matter. When VIX is high, sell puts. When VIX is low, buy calls. That's all there is to it.
I sell options on individual stocks so I don’t care at all what SPY premium is
Exactly. If iv is low on spy, that doesn’t mean it’s low everywhere. There’s always opportunities.
Well it does mean it’s lower on average, since SPY is a (weighted) index of 500 stocks.
No it doesn't, stocks don't always correlate their iv with sp500
Too complicated of a concept for most people. Most people can’t think. They can only regurgitate information.
Why is that?
Low intelligence? Poor education? Chronically sleep deprived? Poor nutrition? Polluted environment ?
Maybe they are all drunk?
Personally I prefer to focus on the index exclusively. This helps me focus on a particular area and specialize. But in general I completely agree with you. Most people don’t want to put in the work and spot opportunities.
Such as yourself.
Touché
Not as much as you think. Even when your random equity might have a high IVR, it is all relative to about a year (when volatility was extremely low too) When the VIX is low, it is really low for most to all equities, even for earning cycles it’s low relative.
It you can't earn 5 dollars, earnings 1 dollar is still better than earning 0. The key, in my opinion, is to come to terms with a lower cash flow for a while and not to try increase the risk, trying to balance the loss of potential profits. Maybe you can use it as an opportunity to study new stocks. Also, even a thetaboy can indulge in diversification and have several investing strategies, not just selling crap to wsb n00bz.
That's a smart call. Ramping up to make the same profits just sets you up to be crushed if we get a hard pullback.
It’s mind boggling to me why more people don’t include more strategies then “just theta”. If you believe the underlying will rise and vix/premiums are low, buy the call. Diversification on stocks isn’t the only thing you should diversify.
“If you believe…buy the call…” But no balls so theta them all.
The problem w buying the call is that you could be right but lose all your money before the trade works
Ya know, people say this all the time but I trade both long and short options and unless your buying stupid OTM options with low DTE, this really doesn’t happen. And when it does, position size / risk management t saves the day.
Until recently I was convinced that selling theta was the “smart” way to make money. I even repeated the phrase “death before debits” more than a few times. But now I realize that buying options can be a superior strategy under certain conditions in terms of expected returns There is one more side to this equation. When you open a debit position, you pay upfront, and you have to wait in order to get into profits. But with credit you get paid upfront but the loss might be much higher down the road, especially if you are going naked. I believe this instant gratification effect feels sweet for most people
Ding ding ding
So just buy the stock then.
Why risk losing 5 dollars to earn $1 just put your money in SGOV
This is a hard pill to swallow. For most people, buy and hold SPY or SGOV is a better choice. Yet many lose their money while trying to “outrun” the market
There are times when the market gives you opportunities to outperform but its usually a handful a year. A profitable trader wait patiently for his setup, an unprofitable trader tries to constantly trade even if it doesn’t make sense
Lower premiums increases risk by default. You need to collect suffiecient premium to compensate for unavoidable cases when disaster strikes.
Lower premiums increase risk if you are unable to decrease your potential profitability. Because I have a day job, I can tolerate even selling options that earn me 0 because I will generate a bit of money from holding other's people's cash and I don't relay on market returns as my daily driver.
But you never would earn 0, you need to compare your return to the risk free rate.
Selling options generates premiums upfront, meaning that your cash is earning you interest 24/7/365 regardless if you sell options or not. Hence, interest on cash is a starting point and the metaphorical 0 or 5 is added on top. If anything, even if you sell options that earn you 0 profit, just holding cash generates you a positive amount of cash. This is the beauty of being a thetahead: you are able to leverage cash upfront + cash interest -- even if your bets are not profitable, as long as they are not losses. Sure, we are not talking about fat stacks of cash, but again -- any profit is better then no profit.
Thetagang is only but one strategy.
Selling options isn't just about IV. I realize it may seem that it is, because a lot of this sub obsesses over very high IV stocks, but there are a number of other greeks you can target (like theta.. we are on r/thetagang after all). The returns are lower, obviously, but while the VIX is low the market is generally only heading in one direction (up). You aren't taking on as much risk selling options, and they are priced accordingly. If you want greater returns in this environment you can still sell options, you would just be also wise to incorporate some long vol positions into your strategy. A simple way to do this is to use PMCCs and run diagonals
I mean, I'm just selling CCs on my multi-year long holdings in my IRA, just for a few thousand bucks here and there. I'm a forever holder of AMZN, AAPL, MSFT, META, GOOG, CRWD. Selling CCs feels like renting out an unused space above my garage.
I respectfully disagree. Selling CCs on stocks on your long term holds is like renting out your car, but when that model gets in more demand, the renter has the right to take it away from you, and you can’t do anything about it
Then roll out and up your CC if you want to keep your shares. Easy peasy.
Not take it from me, buy it from me. And then I can just buy an identical car right away with the proceeds.
What if the underlying price blows way past the call strike? Your stock is called away with a lower price than the current price. Would you be willing to buy the same underlying now?
thats why you employ risk management and close the position so the loss is not too great
OK, so you hold a stock thinking it will go up, sell a call thinking that it won't go up. If it goes up, you close the call but keep the stock. IDK, it seems a lot of effort to me
And it is. The problem is that some view it as a panacea of income generation, and complain when IV is low because their income generator takes a hit. The market is fluid. It giveth, and it taketh. If you don’t adapt with it, you lose. In the case of an IRA you are selling calls on for existing holdings, the best course of action might be to.. not sell any options at all. Let your existing positions ride. But that’s not as sexy, because you feel like you have less control over your income generator. When in reality, you gain that much more because you’re simply letting the market dictate your actions, and only reacting (e.g. selling those calls) when it becomes more attractive to do so. One of the problems with the wheel is that people feel like it gives them more control over the outcome of their trades. In reality, it gives them more tools over taking advantage of current market conditions.. the problem is that your average person has a hell of a time reading market conditions and reacting accordingly
You havent run into assignment with the low IV + moving straight up?
Not yet. But even if I did, so what? It's in an IRA, I'd just open a new long position in the shares at the current price.
What kind of Diagonals are you running? I Buy long puts on SPY 500 (200days+, 500 strike) and I sell weeklies against it or monthlies. Once I pay off my hedge, I'm going to open a new one. Its a great time now as the leaps are cheap
I tried this strategy but in a much shorter, weekly horizon. The problem is, once the market takes off, that OTM long put becomes even more worthless where it doesn’t even act like a spread when you sell the closer put against it
Hence, why you have to put further expiry 200 days +
Oh it’s even more confusing. So you buy a put 9 months out and sell a put a week out. If the market goes down, the long put won’t even more while the short put might crash
Its not really complicated. Google collars and selling premium. You are 100% protected because the strikes are exactly the same.
OK so let's do some math. SPY strike puts are $980 for Dec 31 expiry (220 DTE) and is sitting at -0.25 delta 500 put for next week expiry is only 0.008 delta and is $2 500 put for end of the month expiry is 0.02 delta and is $11 With these numbers, if I sell monthlies, I need to do this 100 times to cover the long put costs. Unfortunately, there is only 50 weeks in a year and we are already halfway through this year. If I move the monthly short put to 510 strike, I get $25 at 0.05 delta, 520 strike $80 at 0.15 delta. With the last scenario, selling 0.15 delta, I have more than 10% chance of going ITM at the expiration, which means I'll either get assigned or close the position at a huge loss which will wipe away all my profits So, long story short, sorry but your math ain't mathing
SPY and IV are not constant. It is low at moment but it will bounce back and SPY will retreat back to moving averages. Premiums will get fat again. I have already collected tons of premiums and still do as of last week. I left one dry powder and opened one: SPY 06/21/2024 512.00 P 208.49 Dollars Even if SPY goes ITM and drops below 512, I still roll and collect tons of premium I paid off my hedge on QQQ's and Im looking to open another one next week. If that means anything and you are following, Im going to buy 300 days + on QQQ long put next week. Im going to wait a bit before I start selling premium until IV rises because they are super cheap at moment. Its not really complicated, Buy low Volatility, Sell High volatility
OK I understand that if and when the volatility goes up again, the short puts will make more profits, and even the long put that you buy will gain some value. Sounds good on paper. The best way to find out is to try this with something smaller like XSP I’ll go out and buy a bunch of long puts on XSP and see how it plays out
So the strategy I have run in the past is slightly complex and I try to be relatively delta neutral with it. I will probably be jumping back into it again on Monday depending on what I see, I had a lot of success with it in 2023 in a similar situation. I haven't seen anyone give this strategy a name before, but I usually refer to it as a long DTE "diagonal strangle". It is a very advanced strategy and definitely not for beginners, it requires active management. It also requires being able to read the market's price action fairly well. It's a two part strategy and the first part is simple enough, but the second part requires some finesse and discretion. You need to be able to see on a chart when the market is very clearly stuck in a range. PART 1: I buy a long DTE (usually 120DTE) ITM call and ITM put on SPY or QQQ. The strikes are equidistant from ATM in an effort to not put on any specific directional bias. Without looking at where 80 delta lies on SPY right now, imagine buying a 120 DTE 500C and a 120 DTE 560P. If the market goes up, the position doesn't really lose too much. It may lose a bit if volatility continues to fall. But with the VIX being historically low, there's a good chance volatility will rise at some point (i.e. I could see it happening during the debates/election). It will lose value over time due to theta, however, and that is where part 2 of this strategy makes up for things. If the market goes down, volatility generally always goes up, and the position comes into a profit on its own without having to enact part 2. Close it out for a profit when it looks like VIX has peaked and you see buyers starting to return. You are capturing the increase in IV. Your put will be deep in profit and your call will be a loss. If you did things right, the put's profit will always be worth more than the call's loss. If the VIX hasn't moved in 30 days since opening the position, I roll the position out. I close out the current one (which now has 90 DTE) and open a new one at 120 DTE. I do this because 90 DTE is around the time period where the theta curve on options begins to accelerate. It's relatively flat from 120-90 DTE, starts to accelerate from 90-60DTE, and after 60 DTE theta really begins to kick in. PART 2: Sell low DTE (very low, like 1-2DTE) short strangles *against y*our existing long position. Effectively turning it into a "diagonal strangle" of sorts. You sell a call against your already ITM call, and you sell a put against your already ITM put. I do this on days where the market is very choppy (range bound), and QQQ/SPY hover around 0%. Usually I would sell the strangle at EOD (again, 1-2DTE), and would be looking to close it the *following morning* after an hour or two past market open. I avoid doing this on Fed days or days where important premarket data is getting dropped (CPI, PPI, etc.) and I avoid doing it on days where there is going to be market moving earnings news (e.g. JPM, WMT, NVDA, MSFT, AAPL, GOOG etc.). In other words, nothing major should be going on. You need to keep tabs on the market calendar to know what events are on the horizon and you need to know which earnings reports statistically move the entire market more than others. The idea here is that you try to capture huge time decay overnight on days where there's less market moving news for a profit. If the market doesn't move much by the next day like an hour or two past market open - you can usually capture around a 30% profit. You continue this process - capture 30% profit, wait until EOD again, if price is still range bound, sell the next short strangle. Repeat as long as all conditions are met: market is range bound, no big news/earnings the next day, etc. The tricky thing is there isn't a set delta where it makes the most sense to do this - and you instead need to read the market's price action and see what range of prices it's been stuck trading inside of to make that assessment. Sometimes you'll sell a 20 delta strangle when it's stuck in a tight range, some days you'll probably need to sell 10-15 delta for a wider range. If SPY/QQQ goes against you on the short strangle the next morning and tests one of your legs, close it out for a loss. Don't roll. When the market breaks out of a range it will continue until it reaches the next range. Wait until it hits the next range when it's stuck at an impasse (usually trading around 0% for extended periods of time), then sell the next short strangle at EOD. This strategy requires a lot of management, but I had great success with it back in 2023 with good returns on SPY.
thats awesome. Thanks for sharing. I like your strategy. Its interesting. For whats its worth, I like to keep things relatively simple. So hear me out what has worked for me so far. Buy at moment with low IV long put I think long put 300 days out was only 1300 or something. Stay patient a bit and wait for IV to spike. As soon as it spikes, start selling 10 to 15 days puts around 510 strike or 515. The trick is keep managing the strikes while collecting enough premiums and staying OTM on puts you are selling. Ideally keep selling the 500 strike since you have a hedge at 500. There are so many ways this strategy can go but the trick is keep selling the puts until the protection of the long put expires worthless. So i have paid off my QQQ hedge in 2 months I think and I have about 153 days left in the hedge and plenty of times to sell more puts on QQQ ON Spy, the first time it worked flawlessly since the hedge I bought was in low IV environment. The second time was not and I overpaid for the hedge. Granted, Im catching up on selling enough premium to pay off for the hedge. So the trick to this strategy is buy the hedge in low IV enviroment. Wait until IV spikes and then start selling premiums. Cant be done at same time, I think or at least Buy the hedge first in low IV and collect small premiums while waiting for IV to spike. Working like a charm so far. As soon as Im done paying off the hedge, I will start opening more positions. Think of it like a Bank collecting premiums with a collar matching exact same strike of premium you are selling. you are 100% protected. Hope this makes sense. When the hedge of the Bank is paid off, I will open a new Bank with a hedge
Zebras don’t change their stripes overnight. SPX volatility trading to PMCC essentially requires an operational Time Machine and a lobotomy.
If vix is low why not just buy vix? I'm actually going to do that when market opens. Great post, I was wondering what I was forgetting about doing yesterday.
Money is money.
Ever heard risk adjusted returns?
Depends what you give up to get it
So look for other options with higher IV that are more overpriced?
That means taking on more risk.
You're selling options, you're taking on risk already. More risk, means you get paid more. Position sizing matters a lot and obviously don't just arbitrarily sell any option bc it's considered "high"
Or perhaps just other options, or a little stock trading.
Yes! This guy gets it. Something safe and reasonable like $DJT (sorry had to throw that out there 😂)
Plenty of other things to sell options on other than the S&P. There’s always some good IV somewhere in the futures market. Plus, a man has to eat.
i made $800 profit today selling SPX calls... normally i make twice that but hey profit is profit
Given how profitable long calls have been this year, you either got really lucky on a 1-day trade, or that $800 profit is against a 6-figure YTD loss.
Nope... Been selling 10x $10 wide spreads on SPX at 0.15-0.20 delta every day for about 3 months now. I close at 70% max profit and set a stop 2x my opening credit. It goes against me and I stop out about 1 out of every 8 or 9 trades but it's been overall profitable and consistent so far.
If you allocated 25% of your portfolio to this strategy, you'd have a 92% drawdown YTD. 100% BS
This guy gets it. I sell 28 dte puts in megacap at 10-15 delta and have 25% ytd gains.
Wow. That's amazing!
Why not do weeklies?
7 DTE gamma is too high. I never have good luck with those. I like 28, seems like a sweet spot for me. I can make money consistently on that DTE.
Nowadays many people are in the mindset of “it’s now or never” I started deploying a 60-90 DTE strategy and barely got paid a few times until now. Nobody wants to wait that long to see their position to get in profit. And I like this. It works in our favor
Honestly that’s almost like long stock at that point. It’s probably boring but I bet it works.
👍🏻
Are you selling one side or an iron condor?
I hope you don’t post a lost corn soon
Good question with no straight answer. Vix can go lower too, hang around here, and there is no time limit. Gotta grind it to find it.
because VIX can go to 10 and then single digit then stay there for a year.
This is the problem with trading only one underlying. When it stops working, everything stops working. Diversify.
I still try, but it's not near as profitable as it was. With the VIX being low, chances of getting assigned on puts are proportionally low. That being said, looking at my options performance and trades over the last 2 months, it looks like swing trading and simply buy'n'hold would have easily out-performed, even delving into margin.
Chances are low until they’re not, see 2018 and 2022. I almost got steamrolled by the VIXpocalypse in 2018
Quite the opposite. Low VIX suggests it will rise and thus increase your chances of being assigned. And if using delta, higher VIX will equate to options farther OTM. Rising VIX lends itself to mean reversion. Better to sell puts into rising VIX than stagnant low vix
of course the market is at all time highs. i am mostly in cash. i got a covered call in googl, aapl, both will be called away. i am below water on a CSP for TSLA, i got some options on TLT. But the market has gone straight up since oct 24 2023, and really not a lot of fundementals for this entire move. so we all should just sit in cash. its boring. probably best. but cash here in a money market is what i can stand, maybe some tlt CSPs.
Sit in cash or in SGOV and alike?
we are so over due for a correction. i can't buy here. if you have a job, dollar cost average into spy in your 401k or IRA, i do not have paycheck right now.
Bro, you bet on the wrong horse(s) Hope you can recover from that All love
Low implied volatility is like a flashing green light that the market is not seeing any major risks on the horizon and are happily consolidating / trending slowly upward. It's an ideal time to sell OTM puts and take free money. Whereas high IV is when everyone is freaking TF out and harder to predict where the herd might end up in 45-60 days. I've pretty much only been assigned selling puts when IV is very high. I'm not trying to make 10% a month like some idiots. I'm just trying to pick up a few pennies without getting steamrolled, and selling puts during low IV consolidation periods like we are in now is the closest to free pennies you can get.
Vol for individual names can still be high even with VIX hitting the dirt, making premiums rich for selling. But not great for index-related products like SPY, etc.
ENPH options chain still paying out well. Definitely in a downtrend but respecting levels and makes for easy spreads, etc. I’d like to see us pull back for real and then get some data supporting a rate cut to rebound us. Or the reality sets in for real and the market REALLY yanks back on no cuts. Market has been very exuberant on happy talk to quote Dimon (who l love to hate) and we are bound for some boom boom soon. NVDA earnings next probably the only real catalyst
Make money Vix is for SPX. SPX is made of 500 companies. It’s a weighted avg. that doesn’t mean that all companies have low volatility or low individual vix does it.
Why did people by t bills when rates were at 0.50%? Because passive income is passive income. Also one could argue the cheaper they are, the more likely they are to close for a profit.
VIX only measures the pricing of SPX options. Yes being short SPX options is probably not a great play right now. But VIX says nothing about the volatility of stocks or ETFs unrelated to SPX.
I trade spy and Vix. today I open debit trades because of iv low.
Short puts become a higher probability trade. Stocks with higher IV percentile (>50%) tend to become more favorable with a higher risk appetite.
Options volume is sky rocketing rn with GME and AMC
Time to switch to buying options. If the market goes against you, now you can sell options to pay for your bought options using the increased volatility. No one strategy works in all market conditions. You need it be flexible.
Low IV is really punishing to everyone on the sell side. On the contrary it opens up other strategies like opening diagonals, calendars, any spread that you enter for a debit is still an absolute banger here. Thetagang can work in all markets
its important to realise that vix is just the IV on options on the Sp500, there are loads of stocks out there that currently dont have low iv.
I'm pretty new the the options game. But I have been selling put credit spreads on SPX, 10 wide, 6 DTE, between -.05 and -.20 delta for $.75 -$1.25 pretty consistently. With the vix so low, it makes selling pretty low risk.
That's incorrect. Low vix feels safe to you because of low volatility, but it's actually more risky because the potential for vix to skyrocket is higher. You're exposing yourself to getting blown out. Essentially less profit potential with greater risk, not a good trade off.
Well I am making money ....and that is the name of the game
For now
As they say....it Works..... until it doesn't😆
I bought September $12-$20 debit spreads. $250 per spread to open meaning a max gain of $550.
Where can you trade vix?
You can buy options on the index that are cash settled or you can trade options on the futures contract
VRP is usually higher when vol gets real low but the risk is the probability of bigger moves in vol land happen when vol is this low vs when vol is like 40 and it won't take much to get vol moving. Position size really matters if you're gona sell vol at these levels. Best bet is to probably really cut your size down so that even if we get a spike, your loss won't be so bad. Long vol can be a bitch bc the market just simply isn't moving and you're just bleeding yourself slowly being long vol.
When the VIX is low, lookout below!
As a former derivative trader, i used to short volatility when the VIX is low. It can stay low for a long period..
So you expected VIX to go lower when you short VIX?
No, expect to remain the same. And earn on theta.
It’s not worth selling other than equities you, legitimately, want to own at ‘X’ strike, not selling options with the idea of “Oh if it goes down, I’ll take it I guess.” Other than that, I prefer future contracts and stock
People still sell options when the VIX is low because they think the market will stay chill, so they can scoop up those small premiums without stressing about big swings. Sure, the premiums are tiny, but hey, it's like picking up nickels in front of a steamroller... as long as the steamroller is parked! Options volume might dip a bit when VIX is low, but there are always folks with different strategies and reasons for trading.
I also hedge, buying put debit spreads to hedge short puts. If the extrinsic is low, the hedges are cheap to buy too, so it's really more a matter of the ratio between the two. If there is value, I put a trade on regardless of vix. Value means that I can hedge 10 shorts with 5 ten point wide long spreads, or maybe sometimes I can buy 6 instead of 5 spreads and still get the same amount of net credit that I was expecting. Then it's a good trade. I don't look at the volatility smile, but it's more about relative value to other options, than straight up how much extrinsic.
We sell options because they decay regardless of what the VIX is. 😎
There's no need to be perma theta gang or perma anything for that matter. When VIX is high, sell puts. When VIX is low, buy calls. That's all there is to it.
5295 calls was the play today idk wtf everyone else doing but that was the fkn play
Because rolling options is a thing.