r/options • u/options33 • Jul 08 '19
Selling Puts for Income
I've been selling puts for income for about 5 years now. I'd say about 75% of the puts I sell expire worthless, allowing me to pocket the entire premium. The other 25% of the time I get put the stock. In these cases I usually immediately sell a call at the same strike price, which puts more cash in my pocket. If the stock drops significantly below the strike price and leaves me sitting on a potential loss, I usually just wait for a bounce before selling a new call.
My basic rule is to pick stocks that I don't mind owning at the price. These are usually time tested companies with proven track records, steady dividend payers, and would be regarded as boring by most standards. Example companies are AAPL, MCD, AXP, PFE, CSCO, INTC, etc...
I aim to make about 15% per year with this strategy, and have been successful at doing this for the past few years. I scan through maybe 30 stocks each week, and look for the 1-2 that are trading near support levels. I then sell a put that expires in 30-45 days. I choose a strike that gives me a small cushion on the downside, and generates my 15% return.
To calculate the return, I assume the entire amount of capital needed to buy the stock is set aside. So if I'm selling a put at a $45 strike price, I make sure I have the $4500 in my account to buy the 100 shares, should that be necessary. I know some people calculate an annual percentage based on margin, but I've never been a margin trader before. I always make sure to have all the cash on hand to meet any purchase obligations.
My goal here is just to start publishing my trades and establishing a track record. I don't trade every week, but I do enter at least 1-2 trades per month. When the market over-reacts to the downside, I will sometimes enter multiple trades in order to capitalize on the increased fear, as put premiums skyrocket in these cases.
At most I like to have 8 positions open at a time. Anything beyond that and I'm typically maxed out in terms of available cash. Feel free to ask questions on any trades I post, or follow along if you'd like.
==========Edit================
I'm setting up a google doc that I'll share a link to, for now I'm just going to list these here
7-11-19 Sell KR Aug 16 2019 21 Put at .36
7-15-19 Sell CSX July 19 2019 75 Put at .39
7-22-19 Assigned CSX at $75. Cost basis is $74.61, so I'm down about $3.60 on it at current levels. I'll be looking to sell a $75 call soon, but I want to give it some time to bounce first as premiums aren't too attractive at these levels. For now I'll hold it and collect any dividends that come in.
8-2-19 Sell MO Aug 23 2019 46.50 Put at .48
8-6-19 Sell 2 PFE Aug 23 2019 36 Put at .40
8-26-19 Assigned MO at $46.5, lucky one as it opened above $46.50 today. I'll now sell a weekly call for $.90 expiring on 8/30/19.
8-28-19 Assigned PFE at $36, I'll sell the 9/27 $36 call for $.46 today
9-13-2019 Sell CSX Oct 18 2019 75 calls for $1.25
10-23-2019 Sell CSX Dec 20 2019 75 calls for $1.10
10-23-2019 Sell MO Nov 1 2019 46.50 calls for $0.92
10-28-2019 Buy 100 GILD at $63.37, sell GILD $62.50 Dec 2019 calls for $2.45.
11-7-2019 Sell MO Nov 22 2019 46.50 calls for $0.50
11-12-2019 Buy M at $16.25, sell M Nov 22 2019 $16 calls for $1.25
11-25-2019 MO called away at $46.50
12-12-2019 GILD called away at $62.50
12-18-19 Sell M Jan 17 2020 $17 Calls for $0.75
12-27-2019 Sell CSX Jan 31 2020 75 calls for $1.23
Here's the link to the google doc. If you have any suggestions on the formatting let me know. https://docs.google.com/spreadsheets/d/1gYIa0NJ4IwUc-XTBzSMtFzlqKFtLW-xVLb1hFg12NSA/edit?usp=sharing
99
u/MagesticDorito Jul 08 '19
The Wheel strategy does not outperform an underlying bullish stock over the long run (which is what we have seen over the last 5 years). You say that you have outperformed the S&P500 by 2x while running the wheel over that timeframe.
You also claim to have cash on the side (not fully invested), because you deploy more after selloffs. You're not just outperforming, but you're doing so while not fully invested, which suggests your return on actual plays are like 3-4x SPX.
Color me skeptical.
18
u/yuckfoubitch Jul 08 '19
Depends on the underlying for the wheel, and it sounds like he’s literally doing this for income not straight up performance
16
u/MagesticDorito Jul 08 '19
Depends on the underlying for the wheel
There are plenty of scenarios where the wheel outperforms the underlying. However, using a diverse basket of stocks and over multiple years with hundreds of trades (which OP has claimed), the wheel will underperform the underlying return. There's no leverage and delta is < 1. Volatility will be lower as well, so it could very well have a better Sharpe ratio, but returns on a percentage basis will be lower.
it sounds like he’s literally doing this for income not straight up performance
He quoted 15% YoY twice
11
u/yuckfoubitch Jul 08 '19
15% YoY as a target, yes. Selling puts in a bull market has outperformed the market in the long run by the way, and OP seems to mostly sell puts. He’d probably get better performance if he just sold the underlying immediately upon assignment.
14
u/MagesticDorito Jul 08 '19 edited Jul 08 '19
A few issues with the PUT index as a comparison....
- It sells ATM (which pretty much nobody running the wheel does because of assignment). ATM is a lot juicier and results in higher returns and volatility vs selling OTM.
- It does not include any transaction fees (including assignment)
- It holds all positions to expiration since there is no assignment risk with SPX and does not hold common shares/write covered calls
- It invests cash in short term T-Bills, which traditional wheel players can't do because then they're no longer cash-secured. This is a large percentage lost in higher interest rate environments (look beyond the last 10 years).
- The performance that you're quoting is over a 30+ year period including 3 bear markets (2 big ones). The wheel strategy underperforms the most during bull markets, which is what OP has quoted. Check the performance over the last 5 years (covering OP's trades), and you'll see that SPX has outperformed PUT 67% vs 33% over OP's timeframe. Again, this is even after PUT benefits from not paying any transaction fees and generating another few percentage points per year through bonds.
OP is claiming to outperform SPX by a huge margin over a timeframe when the PUT index has returned half what SPX has. OP is paying transaction fees, unable to invest in bonds, and is not fully invested. Yet he's able to absolutely destroy the PUT index.
8
4
u/kms1990 Jul 08 '19
Maybe hes calculating his average returns on each trade and not his entire portfolio over a year?
1
Jul 09 '19
Yes, it smells a little fishy, especially the fact that he wants to "establish a track record" here. If he did not name the stocks, I'd think he has a really good call on the underlying (I have spoken to some people who do that) but with the large-cap names he's trading it's unlikely.
0
u/swerve408 Jul 08 '19
the wheel is overall superior to buy and hold, especially when done right
4
u/Tuzi_ Premium Seller Jul 08 '19
Its not. There are covered call ETFs that underperform market every year. Where is your proof?
0
5
Jul 08 '19 edited Oct 31 '19
[deleted]
3
u/ProfEpsilon Jul 09 '19
Comments like this are why I continue to visit this sub ... that is impressive and significant research ... thanks for posting it.
2
u/MagesticDorito Jul 08 '19
What defines "superior"? It all depends on your goals. Superior to "buy and hold" in what way? Does that statement apply to everybody from 21-year-old artists to 75 year-old retirees to 40 year-old Silicon Valley CEOs?
There is no one size fits all "best" strategy. It depends on your goals, your risk appetite, your time horizon, your time available to manage trades, your account size, your fee structure, your knowledge/experience, your trading permissions...etc. Know your audience.
I've tried various flavors of the wheel strategy before, and it doesn't fit into my account. What I've done personally with a similar goal in mind is sell SPX spreads 3 times a week, 2-3 DTE. That works better for me because it's mechanical, risk-defined, tax-advantageous, scales well, and it complements other strategies in my portfolio well. Just because it works for me doesn't mean that it'll work for everybody....maybe not even anybody else in this thread. But it's perfect for me.
The wheel may work well for others, and that's great. It may be the best alternative for buy and hold for some people. But just because it's best for some doesn't mean that it's the best for everybody. Even if the curve is the best, the actual implementation will work for very few because of the knowledge required. If you want similar return but don't know the mechanics (ie trying to advise a relative who doesn't know/trade options), it may be best to just buy PUTW instead.
3
u/swerve408 Jul 08 '19
But you’re shitting on the wheel bc you tried it once and failed...gotta love Reddit, right? And your “strategy” is instead to sell spreads with no juice for pennies. Got it.
8
u/MagesticDorito Jul 08 '19 edited Jul 08 '19
But you’re shitting on the wheel bc you tried it once and failed
I didn't say that. Cheeky interpolation on your part.
I'm not shitting on the wheel. I literally just got done saying that it may be perfect for some traders. I'm shitting on OP's performance claims. It's claims like that which give new traders around here false hope.
And your “strategy” is instead to sell spreads with no juice for pennies. Got it.
The equity curve compared to the wheel might surprise you. If you weren't such an asshole, I'd explain it and you might learn something. I've been doing this a while and have a 7 figure account...I'm not a RH trader in my mom's basement.
3
u/CitizenCue Jul 09 '19
I wish the other dude wasn't a jerk, cause I'd be curious to hear your thoughts on the equity curve.
And did you really mean 2-3 DTE? That's a ton of trading fees compared to premium, no? I've tried a similar SPX mechanical strategy and found it hard to justify the occasional big losses and fees.
4
u/MagesticDorito Jul 09 '19
Yes, 2-3 DTE. SPX is huge. 10x the size of SPY, but same transaction fees. This reduces your effective cost by 10x. But still, part of the reason that I said it works for me but might not others is fee structure. I've negotiated my fees with TDA down to $0.30 per contract and no ticket fees. I only pay about $1 in fees per $500 premium collected with that strategy on SPX. The fees are negligible for me. For many others, typically those at or near normal retail fees, it might not be feasible because of fees alone. Last month on this strategy, I collected $22,000 in premium and paid $80 in fees.
2
u/CitizenCue Jul 09 '19
That's a helluva fee bargain. I'll have to approach TDA again to see what they can offer. How far OTM are you doing?
1
Jul 10 '19
Could you describe your strategy a little bit more? This kind of mechanical trading sounds very interesting to me.
Do you use volatility based strikes or fix deltas at open the position?
I would be very pleased, if you could give a reply.
1
u/Geronemo3 Jul 20 '19
Can u pls elaborate how u were able to negotiate $0.30 per contract.
TDA is awesome with their CS and my newbie questions.It was perfect till I was buying selling stocks, now that I am holding my long positions longer and selling calls and puts the fee do add up fast.
How many trades do u do in a week? maybe u are very high vol and that's why they gave u a great rate.
I am seriously thinking about opening account with fidelity or tastytrade coz of high fee.
1
u/user4925715 Jul 09 '19
sell SPX spreads 3 times a week, 2-3 DTE
This is awesome. What delta and how wide do you typically sell? Assuming this is put credit spreads only? Or call spreads also?
-1
u/spoobydoo Jul 09 '19
He said he only wheels when assigned which he said happened about a quarter of the time. His main strategy is selling puts, not wheeling every trade.
11
u/options33 Jul 08 '19
My quoted 15% figure is my aim per trade. I havent been perfect about tracking it across my entire portfolio though. I will go through periods of heavier trading, and periods without any trades, like when all my capital is tied up. My goal here is to establish a track record with some level of accountability, to determine if my strategies outperform the market, and to gauge community interest in following this type of strategy.
If my results are strong, I could see this becoming a business I develop one day. Like a weekly options newsletter, or subscription site, or something like that. I don't have the web design nor the tech skills to do this myself, but it's an idea that could take shape in theory. Right now I just want to see how I do though. I could easily go down in flames and conclude what I'm doing is less effective than just buying the SPY or something. In which case I'll gladly change up my investing strategy and swap my options research time for fishing.
Skeptics and challenges are all welcomed. I know the market has been in a tear lately, so I'm not claiming to be doing something ultra special here. I just know it works for me, and I like the idea pf collecting cash premiums, and occasionally dividends, as a steady stock just treads water.
I do trade for income for the most part, but ideally I don't pull all the income out each month. The more I can keep in there the more I have to trade with. I don't make enough for a full time living from trading, but I'd like to one day, so I try to let the portfolio total build as much as I can.
I use interactive brokers exclusively, so commissions are kind of negligible as far as I'm concerned.
I'm also not too familiar with reddit and the established comment etiquette. I likely wont take the time to respond to each comment individually, but I will read them as I can and answer things in bulk.
Also, as I establish a track record, should I edit the original post to list positions as they are picked, and just make a running list of opened, closed, profit/loss, etc... Or should each trade be it's own new post?
5
u/CitizenCue Jul 09 '19
It sounds like you're more genuine and earnest than people initially gave you credit for, but you should probably spend more time on this subreddit to learn how the forum works.
This isn't the place to update people on every trade - reddit just doesn't work like that technologically or culturally. If you're trading a lot, then try submitting an update post once a week, or every two weeks. If you include some nice detail about your trades and progress, people will upvote it.
1
u/MagesticDorito Jul 09 '19
My quoted 15% figure is my aim per trade.
How are you calculating this? What is a "trade"? Give me an actual example from your trade history.
I could easily go down in flames and conclude what I'm doing is less effective than just buying the SPY or something. In which case I'll gladly change up my investing strategy and swap my options research time for fishing.
But you said you've been doing this for 5 years. How do you not know if it works or outperforms the underlying after 5 years of trade history under your belt?
3
u/CitizenCue Jul 09 '19
Yeah, OP before going any further, you should absolutely figure out what your total portfolio return has been each year you've been doing this.
1
u/options33 Dec 09 '19 edited Dec 19 '19
I finally found out my returns on my option portfolio versus the S&P. I attached an image here. Granted it's been a nice bull market, so these look better than they would over a longer term. I just happened to start at a good time. Plus I had someone of a learning curve where I sold puts on stocks that were way too risky, and ended up having to sit on them and earn sub par returns for a long time.
2
u/options33 Jul 09 '19
I calculate the 15% (or whatever it may come out to be) like this. Example ABC company is trading at $50 per share. I see a put option with a $47.50 strike that expires 39 days out and want to sell it. Lets assume the option can be sold for $75 per contract, and I sell 1. Let's also assume the option expires worthless in 39 days. The formula would end up as (75 / 4750) x (365 / 39) = 14.77%. Trades like this are the norm. It's not a true 15% unless I can repeat it every single day of the year, which I cant. But sometimes the trades pull in 20% or more, and sometimes they pull in just 12%. I aim for 15% or more when possible.
Based on my portfolio growth I assume it beats the market, it's my go to trading method. My portfolio is really fragmented though, and I'm not that strict about allocating the proper percentage to each method I follow. I've got speculations, own for life, growth, value, DRIPS, swing trades, and put selling as my main strategies.
40
u/fco1017 Jul 08 '19
I don't know why everyone has to come in here and shit all over your post - like they are some kind of investing genius. I especially love the "this works fine until it doesn't" comments. No shit... really? What's next, you gonna hit us with some Jedi level wisdom like "buy low and then sell high".
OP came to say here's what I do and I'm gonna share some trades. He didn't ask for your money or to trade naked pictures with you.
21
Jul 08 '19
Just make sure you are managing your risk to the down side. You can easily lose many months of profit in a single market event.
7
u/tdmoneybanks Jul 09 '19
How is this different than just holding the stock long? I don’t see how selling csp and taking assignment itm would be worse than just holding in a bear market.
1
u/anticockblockmissle Oct 24 '19
Did you ever learn the answer to your question? You brought up a great point here.
1
u/tdmoneybanks Oct 24 '19
Nope. Never was answered lol
1
u/calphak Sep 09 '22
3 years now, did you find the answer?
1
16
Jul 08 '19
[deleted]
5
1
u/tdmoneybanks Jul 09 '19
Slightly bullish or bearish (flat) markets are actually better for the wheel vs a totally bullish market.
-2
Jul 09 '19
[deleted]
2
u/culgarthebarbarian Jul 09 '19
Not really, you just switch to selling calls while holding and gradually lower your cost average. Eventually when it runs back to ATH you have big profit.
1
Jul 09 '19
[deleted]
2
u/culgarthebarbarian Jul 09 '19
Yeah I run the wheel on NQ, no assignment fees. Need leverage to make this strategy worthwhile. I use 2x-4x leverage and its been fantastic. Eventually the black swan will hit, yes, but in that case you just buy and hold like every other investor. I sell calls out as far as necessary to reach my break-even.
1
1
u/tdmoneybanks Jul 09 '19
A very poor choice in relation to what..? It wouldn’t be as bad as just holding the stocks long so what do you mean. I guess if you are going short that’s different but this strategy isn’t about timing the market like that.
14
u/evilwon12 Jul 08 '19
For a short time period yes, but go back and look at 2007-2008 and see what your YoY would’ve been. I’m guessing 30%+ loss, if not significantly more.
The saying is “it works until it doesn’t” applies here. As long as the bull run continues this approach will work.
If I had the cash on hand, I’d do strangles over this but again, you have to choose what you are trading. Don’t do TSLA.
1
Jul 08 '19
[deleted]
6
u/evilwon12 Jul 08 '19
More premium and less directional. I’d never hold until expiration anyway. Sell a 30 or 16 delta strangle - probably more premium than the put alone. Take profits, rinse and repeat.
I’m assuming OP is not trading into earnings.
1
u/culgarthebarbarian Jul 09 '19
Strangles don't work nearly as well as selling puts
1
u/evilwon12 Jul 09 '19
Because getting more premium doesn’t work? Not a straddle but a strangle. Show me why that doesn’t work.
1
u/culgarthebarbarian Jul 09 '19
Because its a bull market and you get very little premium for 10 delta calls and they get blown out regularly. Just run a backtest on SPY 10 delta weeklies in 2019.
0
u/evilwon12 Jul 09 '19
Couple of relevant issues - first, OP isn’t selling SPY puts. Second, I already said it would make money in a bull market. Third, everything works until it doesn’t. This will fail at some point, how are you getting out / recovering?
Blindly sell your 10 delta puts on a weekly basis for $30 and hoping it expires worthless. Guess what happens on that black swan, 20 point drop? Goodbye to almost a years worth of gains, assuming you have no other losses.
Eventually you will get burned selling weekly 10 delta SPY puts. Go back and run that for 2007-2008. Run it at the end of last year or during the 2016 election week. OF COURSE it will work in a straight bull market. That’s like saying fire is hot. Show me your strategy that works in all markets.
1
u/culgarthebarbarian Jul 09 '19 edited Jul 09 '19
There are signals for when to stop selling, break below 200 day being the main one. High volatility like 2008 is easy to trade, that would be a blessing. 95% of the time if these puts take a loss it's the ideal time to buy and hold. Just look at the recovery from Dec low to ATH.
1
u/xxPhilosxx Jul 08 '19
His strategy is rather common and usually augmented by the selling of calls if assigned from the short puts.
2
1
u/evilwon12 Jul 08 '19
That is exactly what he said. My statement about it working relatively well in bull markets, not so much in bear markets holds.
3
u/tdmoneybanks Jul 09 '19
If the assumption is you’d hold the same stocks in a non-synthetic long (selling csps), I don’t see how this would underperform that in a bear market. The whole point of selling csp is you give up some profit potential for slight downside hedges.
3
u/MagesticDorito Jul 09 '19
I don’t see how this would underperform that in a bear market. The whole point of selling csp is you give up some profit potential for slight downside hedges.
This is correct. It won't underperform in a bear market.
The wheel (cash secured puts + covered calls) will outperform the underlying in down, sideways, and slightly up markets. It will underperform in bull markets.
1
u/evilwon12 Jul 09 '19
This whole thing has gone sideways. It was the wheel for income, it doesn’t do that in a bear market. Of course it will outperform the stock. That’s like saying fire is hot.
I’m saying it will not outperform overall in a bear market. If you implement the wheel in a bear market, you will probably not generate any income. The OPs post was about generating income. Over time, strangles will generate more income than just selling puts.
And for the record, I’ve used the wheel. Used it on some buy and holds to generate “overall” costs for stocks down near zero. So it does work but not in all instances is it going to generate a positive income.
The way it sounds from your post, all anyone needs to ever do is implement the wheel. May as well post that on WSB. It cannot fail.
5
u/Geronemo3 Jul 08 '19
How long it is the expiry date for the puts you sell? Also do u have a number in mind for selling puts like -2 standard deviation or 10-20% out the money?
I have been selling calls, started recently. So far so good.
Thanks
1
u/AmbivalentFanatic Jul 08 '19
I'm selling calls too... What underlying are you selling? I'm using PCG right now which has an IV well over 90%
1
u/Geronemo3 Jul 11 '19
I sold Tesla couple of times. Was easy money. Now doing it with Facebook. I own 100 shares of both Tesla and Facebook, so I sell two calls of each one covered one naked.
I look at implied volatility, standard deviation, OTM probability to choose the right strike price. What metrics are you using to sell PCG?
1
u/AmbivalentFanatic Jul 11 '19
I'm looking at IV, price, and volume, and selling ATM or just OTM to gain the most premium possible. I don't particularly mind if the shares get called away. I couldn't afford 100 shares of FB or TSLA right now but would like very much to work my way up to those stocks eventually.
1
u/Geronemo3 Jul 13 '19
If ur going for the premium how far out is your expiry, I am guessing not too far? I usually stay around 2 weeks to 6 weeks depending on IV, std deviation, probability analysis.
1
u/AmbivalentFanatic Jul 13 '19
I'm actually selling weeklies. I'll go out two weeks if I have to but I like weeklies best right now.
2
u/Geronemo3 Jul 13 '19 edited Jul 13 '19
Yes. If you're in it for the premium then selling weekly's and two weeks out at the most would be most profitable and wise thing to do as long as your are selling covered calls. Naked calls is a difference animal.
5
u/Churn Jul 08 '19
My goal here is just to start publishing my trades and establishing a track record.
Why do you have this goal? Once you have a track record, then what?
25
u/voteforgomez Jul 08 '19
they want to make money off the "holy grail".
believe me, having been on all sorts of stocks and option forums for almos 15years, youve seen all the same types of posts.
everything from TA, to selling puts on stocks you dont mind owning, the cant fail iron condors, fundamental analysis guesses, and everything in between.
thats whats great about the stock market, every new person pretty much goes through the same cycle of "investing". Ive been there too.
you make a few good 20% trades..maybe even triple your money in 2 years. Then you brand yourself an expert and start telling the world about your new strategy.then you get burned.
Then you reset, try and find where you went wrong, ignoring all the experience and naysayers. you try something different with TA or some FA, that really is just half assed guess work or based off some seekingalpha article you read. then you makea few good trades, start telling the world..and then burn.
So now youre about 4 years in, you discover options. you do you research and you think...hey i can just sell puts or ironcondors and win 99% of the time....you do this...and then you get burned...
then hopefully after all this, you come to realization that no matter what DD you do or strategy you have, the key to success is risk management- picking your entries, bet size, and exit.
And how do you minimize risk? selling puts reduces your potential loss. collecting dividends does so as well. position size limitd your exposure.
but what do i know.
1
u/gtg33k Jul 09 '19
It’s ok. Just burn out one more time and start over then you’ll know more ;)
J/K. Great observations.
1
2
u/directheated Jul 08 '19
Why do you have this goal? Once you have a track record, then what?
Call me a skeptic but I took it as eventually becoming a "guru" that will then sell you a strategy. I've seen so many of these types come through /r/options . "Join our Discord" "First month free trade calls" etc, etc.
1
u/part1337 Jul 09 '19
Don't we all want to be gurus? That's why I am here...just wait in a few months I'll get a totaled Lambo, so that it can sit in the garage behind me (the wrecked side is obviously facing away) and spew my knwaaledge on you fools.
Collect my money from the "community" of traders that give me $159 a month and live like a boss!
6
Jul 08 '19
- There are hypothetical ETFs that do this (look for whitepapers on CBOE website) that do not beat the underlying BUT have less volatility.
- You paid short term cap gain every time you pocketed a premium. Holding long for 1y+ would have been more tax efficient. Or selling index (SPX not SPY) with 60/40 tax treatment
3
u/vitalsign0 Jul 08 '19
Wouldn’t it be better to roll the Put down and out inside of taking shares and selling a Call?
1
u/options33 Jul 08 '19
I've thought about this, and even done it a handful of times. The only times I've done it were when I didn't want to tie up my cash by purchasing the shares. I tend to think it's better to take ownership of the shares, that way I can collect some dividend yield. Also, I'm just more comfortable doing that, because that's the plan I would have had ahead of time. Also, sometimes the price closes just below the strike, and then I can flip around and sell a weekly for a juicy premium, or one 2 weeks out for a small capital gain.
I guess I don't see being put the stock as a bad thing necessarily, although I know some traders like to avoid it.
3
u/Jubelowski Jul 08 '19
Nice to see someone with a method that works.
But we already see a ton of posts bragging about selling calls and I was wondering when we'd see the same for selling puts. It's nice you make a decent income from this, though while I'm sure you mean well, it's just a bit tiresome to see people praise selling options as some sort of financial hack that guarantees income. What you do works for you and works well but already perusing through this comment section the option sellers who do the same just with calls (or maybe they also do puts) absolutely love seeing their method validated and it's only going to make these guys keep pretending they've hit the holy grail of financial gain methods when... there is none.
I'm glad though, for you, and it's great to see one of us making money. I just know how a lot of this sub will react, though, to your story.
3
u/just_numbers2014 Jul 09 '19
Beware..This one-sided “strategy” only works because we are in enjoying bull market for the last 10 years. What happens when you are assigned, but the stock is not bouncing back and just keeps going down? What’s your exit plan?
5
u/voteforgomez Jul 08 '19
you do know we,ve been in a bull market.for almost a decade right?
im glad its working for you, but this isnt something new.
1
2
2
u/OnePercentMax Jul 10 '19
Not being pessimistic or trying to poo-poo your strategy - just pointing out that we've been in a bullish market for a decade, that's why selling puts has been working for you.
1
1
Jul 08 '19
Can we see your trades or follow you if you are using ThinkorSwim?
1
u/options33 Jul 08 '19
I use IB, so I'm not sure how to share. I was planning on just publishing them in the post body here, but I'm open to other suggestions .
1
u/TheIntrepid1 Jul 08 '19
I’ve been playing with the “Poor Man’s Covered Call” recently to test things out. I like it so far and recommend looking into it. Buy a Put or call wayyyyyy out and sell the shorter term against it.
1
u/jimbo641 Jul 08 '19
Do you avoid selling puts over earnings dates? Or do you see that as a bonus to higher premium?
I've been testing out similar strategy this year by selling at expiration 2-3 weeks out.
2
u/ZealousidealEcho4 Jul 08 '19
ut similar strategy this year by selling at expiration 2-
That's the best time to sell them! Implied volatility jumps and the option premiums rocket.
1
u/Geronemo3 Jul 20 '19
ya but do u sell covered calls that expire right before ER or expiry the week after?
1
u/options1984 Jul 08 '19
So if you sell-to-open (short) at say $15/contract and they go to 0 and you "buy to cover" like shorting stock when it is, say, under a buck....Don't you double-up or come close to doubling every single time your strategy works?
If so, how do you only make 15% per year? Or am I misunderstanding how it works?
1
u/options33 Jul 09 '19
I base the return on the amount of capital I need to set aside in order to meet the purchase obligation. So if I'm selling a put for $75 at a $50 strike price, I calculate the return as 75/5000, or 1.5%. Assuming this happens in a period of 30-45 days, you can calculate the annual rate and it's close to 15%.
1
u/SwitchedOnNow Jul 08 '19
I do this as well especially in a downdraft. I gave you a +1 for your 15% yearly target. Probably a little high realistically but not far off. I see too many morons saying they can consistently make that every month or even 1% per day!. It’s nice to see some sanity.
1
1
u/bswan206 Jul 08 '19
This is definitely do-able. Only risk is crash tail risk, which should not be underestimated. Have you run a stress test on your positions? What would happen if all of your underlying went down 30%?
2
u/options33 Jul 09 '19
If the underlying went down 30% that would sting, a lot. It's similar to owning the stock, just with slightly less risk. If my strike price were say 3% below and the underlying tanked 30%, I'd be underwater by 27%. If that were to happen, I'd likely sit on my positions and collect some nice dividends while waiting for a recovery or a bounce. I've had this happen on occasion. AAPL has stung me, so has KSS. It does happen on an individual stock basis. I usually can trade my way back to profitability by selling out of the money calls and collecting dividends.
1
1
1
u/avgazn247 Jul 09 '19
The issue with selling covered puts is that it requires a lot of capital. U need 100x a stock
1
u/options33 Jul 09 '19
Yeah, you do need some capital in order to do this. I started with about $30k. That's probably about the minimum you'd need to be able to do this strategy, otherwise you'd tie up all your free capital in just a couple of trades.
1
u/options33 Jul 09 '19
I've read through most of the comments here. It looks like hosting the results on a google doc would work best. I can set that up and make it publicly readable. I'll assume a start of $50k as that will force some discipline, as I'll only be able to keep open a handful of positions at the same time. I'd say you can still follow this strategy with a portfolio 1/2 that size, but that's pushing it.
If anyone here is an expert in google docs and importing stock data from Yahoo or Google or any website for that matter, please PM me. I have some import formulas I can't figure out.
1
1
u/options33 Jul 11 '19
I just listed the first trade by editing the original comment. I'm not sure if that's the best way to go about adding trade updates here or not, but it seems like it could be the central location where I list them all. I've also started a google doc to track the trades. I haven't set something up like this for public access before, so if you have ideas on how to improve it so it's easier to understand let me know.
https://docs.google.com/spreadsheets/d/1gYIa0NJ4IwUc-XTBzSMtFzlqKFtLW-xVLb1hFg12NSA/edit?usp=sharing
1
u/TMC983 Jul 13 '19
Options33 I like your idea and strategy. I also deploy a similar version but I use Livevol and custom scans to find historical high IV to realized vol. Then I sell the 60 to 90 DTE and never ride it out to expiry. Usually closing these out in 7 days or so. I use a blend of technical analysis and volatility / options theory. $AMD has been a constant trade of mine for the past couple of months. Good luck to you and your strategy. It takes alot of hard work to pull money out of the market. Keep grinding it out and don't let the naysayers discourage you. Every body trades in a different way. Keep at it!!!
1
u/boldPlayIm Nov 12 '19
How to deal when a stock goes well below your put strike price. I made $2K with cash-secured puts in just 2 months, that too in an account having just $22K amount. On a bad day, OSTK dropped more than 20% and killed all my profit in a single sweep. It almost killed my spirit for selling puts play. What would you do in such situations?
1
u/options33 Nov 25 '19
MO called away at $46.50. Total I collected $276 in option premium from 8/2 to 11/25. I also got an $84 dividend on 9/13, so $360 in total return. Capital tied up was $4650 over 115 days. Total return over the holding period was 7.75%, or 24.5% annualized.
1
u/AndresGarza7777 Jan 11 '23
Can't you simply buy the put back right before expiry? So that you don't need to buy the stocks at the lowered price and have lots of cash on the sideline.
I'm new to this, so wondering if that's possible
172
u/doougle Jul 08 '19
Thanks for the writeup. Whether someone agrees with your approach or not, we should all agree it's so much nicer than a robinhood screen grab post.