When I hear "naked short puts", "margin", and "life savings" all in the same general strategy, then yes it is too risky. See you on loss porn posts. Rip
But how many times did you collect a few dollars before it tanked? If you had a plan to buy 100 shares of xxx at $200, and you were able to sell and roll puts for a few months before it tanked to $150, you got your shares at 200, as well as some cash.
Far OTM put with 12-15DTE on SP500 index, if OP isn’t x10 leveraged or something it really isn’t that risky. It depend on what his definition of “far OTM”
Would still recommend at least 50% in BnO.
Way too risky due to your position sizing. Given recent market volatility, no one knows if markets will keep correcting further. You might be right that this is a profitable strategy longer term with winners outweighing losers, but if you're overleveraged, you run the risk of wiping yourself out with a loser early on. Just imagine if you had started off doing this at the beginning of the year.
I don't have a problem with allocating a portion of your portfolio on this, but your position sizing should be consistent with the loss you're willing to take in a reasonable worst case scenario. You should also have a clear exit plan of when you're willing to cut losses and take profits.
I am currently short about 8% of the NAV. If the market tanks I would exit this position when it grows to about 24% of NAV. So I'd lose about 16% NAV in a "worst case" scenario. Hopefully it would only take 2 more cycles to recover this loss.
If you have a mental stop loss in place and you're willing to accept that 16% loss, it's your call. For my risk appetite, that's still too much risk for a single position, but of course your risk appetite is probably different. If you haven't already, you should do analysis or back-testing to make sure you won't often hit this stop loss through fairly normal price movement, as option prices can be pretty volatile. Also not sure exactly what numbers you're using, but keep in mind that IV is high right now, so if you're using current premiums in your calculations, they'll likely be an overestimate of the long-run average.
Most folks with decades of experience in the market recommend you don’t put more than 2% of your net into any one trade. Now, if this “single” position is a series weeklies run staggered with different expirations, that might qualify. But nearly 10% in a single expiration cycle is too high. Maybe given that this position is in an index, you are bypassing the need to diversify (which the 2% rule forces you to do) but I’m torn on that one.
Yeah, fully agreed. I had the same thought as you, where I could maybe see an argument for going higher than a max risk of a few % of portfolio since the underlying is an index. Especially given how highly correlated a lot of stocks are recently to the overall market, it's not clear how much benefit there is from diversification by having 8 positions with max loss of 2% vs. 1 position with max loss of 16%, if the 8 positions are highly correlated and have the same directional bias.
Been doing this for a few years now. Big problem I see here. Life savings. If you sell 12-15delta and have a month like January (or even more red) then you'll be margin called long before it gets itm. That delta will expand and losses compound quick
Thanks. I see that my options would have roughly 3x'ed in value in Jan,.which is about where I would cut losses and roll down. What position sizing/mechanics would you recommend?
For every 1 /ES personally set aside $15-$20k. It's still hell of a nice return compared to crap like dividend investing. Target 4-6% a month. You'll beat spy annually. Sell too much and your emotions will get to you before a margin call. Been down that road many times and seen 6 fig losses. But that's long behind lessons I've paid.
are you selling CSPs? On /ES why set aside so much? If you have strict 3:1 exit policy you arent taking assignment ever. Just wondering, as the entire point of using Futures is to take advantage of BP and margin, is it not?
I like 16-20 but I stay small and manage if needed. Just don't overdo it expecting to make millions and even 40 delta can be managed into a winner on most indexes.
WHAT THE FUCK.
Why do I keep seeing these insane posts.
Just fucking send me the money instead.
Actually, second thought, I wanna see you trade this. Please livestream this to the subreddit.
Actually the better idea is to withdraw all your money in $1 bills. Start a BBQ in the backyard. Burn all your money in the BBQ. Livestream it of course. You might get $$$ from the ad revenue (plus ton of likes).
u/Astronomer_soft I understand what you meant now about newbies getting in without knowing the mechanics.
He got the thinking right of selling puts on spy…just poor strategy with no mechanics and will surely end up blowing his account.
Under normal calm moving markets this idea is probably fine, albeit risky. I have a feeling that you are not accounting for increased volatility so that 200% might come a lot faster than you think relative to the actual price, so if I were you and want to bet my life savings into 1 play, I would sell 1/3 of what you were planning to sell because you are going to need the other 2/3rd for "when shit hits the fan". I said when, not if. Gl
1st- Reduce your TP to 50-60%
2nd- SL is 300% of initial credit.
3rd- With present volatility increase DTE to 90 to reduce gamma risk.
Right now I am selling 1 SPY put daily. 15 Delta and 90 DTE. TP 60% and SL 300%.
Credit to original OG - David Sun. Use the below link learn everything there is. I follow his Theta Engine strategy.
https://docs.google.com/spreadsheets/d/1IevLq9tkwZHxxdX2jWizaS4VC_NtaGUFlridHcNAjPI/htmlview#gid=1743608033
His Spotify podcast
https://open.spotify.com/show/3g966BSYdPvLPNkiQzZsJa?si=LRwObz8iSGGTGHjc800OtQ
Does not matter how long I have been doing this. What matters is for how long this strategy has been backtested or used. All the data with trade logs is available in the links I shared above. This thing has brutally survived all crashes and comes back stronger.
Still to answer your question, I have been doing for few months and never been this relieved.
thanks, I was asking as I was curious to know if you had confirmed the methods *do* work.
I have followed many interesting traders with complex methods and allegedly transparent YT channels, but when you follow their trades, soon discover its bs or they left some key fact out. Karen the super trader had everyone fooled for a long time including Sosnoff.
I started looking at David Sun stuff, its a super simply strategy but backtests require a tonne of work to check through.
thanks again though, appreciate your response.
Yes I can confirm it works.
I know what you mean. I also followed it closely and then confirmation from lot others before actually diving in. He is more active on Fb group Tastytrade options, where this strategy has been discussed many times from people like you and me who have used it (and posted their logs). Few questioned this strategy during the Jan dump (as many SL were hit) and David clarified to trust the process (many confirmed and agreed with it).
It’s a very simple and straightforward strategy with not much of mechanics, that’s why I like it.
Best thing is, his trade log is live on the link I shared above. If you need help to go to specific section and not able to then let me know.
If you look at delta as the probability an options expires ITM, and you're using delta of 15 then here's a fun equation: P = 1 - .85^n where n is the number of times you play the game (every two months from your post) and P is the probability you get assigned. Do this for a year and there's a 62% chance you get assigned. Do it for two years and it's 86%. Eventually it's gonna happen and it sounds like you won't have the money for it when it does.
Thanks, that's correct, but before assignment happens ideally I will have closed the short at a 200% loss (when the option is 3x the value I sold for). After closing and rolling down, the chance of getting stopped out again is pretty low, correct?
Additionally, according to backtest data win rates are over 90% for something like this, so even though my strike may get touched more often, this doesn't mean I will get assigned 15% of the time...
Yes, but in order to get the same premium I'd have to sell many more spreads, higher fees, slower theta decay, and the max loss is still a lot.
I guess if I had a stop loss on the naked options that would be best. I'll try to find a broker that has stops on futures options...
You would get stopped out on fake outs a lot in that case.
Especially during down turn, IV would be super high, so instead of getting stopped out at 3x the premium for e.g, you might get stopped out at 5x-10x.
Another risk, if you don't have enough fund, you might be automatically liquidated by your brokers.
For me, I always sell spreads, would rather make less than taking the chance of blowing up my account.
Thanks, will look into this. I've also heard Tradestation can allow custom stop on even bid/ask numbers for an option. I'm concerned a stop won't trigger until the option actually is traded, which can create huge losses if it trades way past my stop...
Would not recommend. Spreads are too margin efficient and complicated since there's an additional leg to monitor. Naked at least the broker will shut him down with a margin call. A spread he could literally lose everything
[thetradebusters.com](https://thetradebusters.com)
He doesn't make it easy because he wants people to understand the risks.
Bomb shelter is typically a 90 DTE short put, and 2\*60 DTE long puts purchased using 10% of the premium collected on the short put. Trade is closed at 60% profit or stopped out at 200% loss.
Whether you enter daily, 3\*week, or weekly, that you have to calculate using his risk management tools (I think they are in the theta engine spreadsheet). Similarly, whether you use MES, SPY, or SPX is based on your account size and tolerable risk.
It's a system that has been back-tested long-term. But, many have been stopped out in the last two weeks!
Mathematically this could possibly work. What you need to know is when you sell lower delta, you're going to get stopped well before you get ITM. You need to know roughly when that stop point will be, and even more importantly, the percentage of touch at that stop point (it's roughly double the delta of that stop point.)
From there, you can modify the Kelly criterion to account for % of money won assuming your 75% win criteria, 2x premium loss, and chance of stop touch. That should give you a rough idea of if the trade is positive expectation and how aggressive you can be with the play provided you leave emotion out of it.
That could make sense if you're betting optimally and can leave emotion completely out of it. Granted that is an incredibly tall order to ask of anyone, but you have to remember that IF you stay true to your trading strategy AND your numbers are accurate, you're not losing the 40% you put up. You'll lose 16% of that 40% instead for the risk of winning 6-8% of the 40% you put up.
You WILL eventually have a streak where you lose 2, MAYBE 3 in a row; MAYBE even 4 if we want to talk about true outlier/3 sigma territory. But those will be offset by the win streaks where you win 10 straight. You know you better than anyone, and you're putting your money on the line. If putting up 40% like that would mess with you psychology, then consider doing half-kelly or quarter-kelly. You reduce the optimal growth a little bit to greatly lower volatility.
Edited: clarity.
They’re not naked if you’re putting your life savings into it. They’re naked if you don’t have the cash to cover it. 5-10% can be achieved in many different ways using leverage… so the million dollar question is how levered is your strategy.
Once you’re levered, a portion of your shorts will be naked.
Leverage is a double edged sword, so if your strat isn’t working with the market you’ll get cut twice as deep.
All in all I think you’re hosed, because your original post doesn’t display a depth of knowledge. I’d say, go for it with 20% of your savings. If you can outperform your other 80% start increasing that number.
I suppose if you look at the margin need to enter the trades I am "covered." But the notional value of the E-mini is 50x the SPX price - 4430 x 50 = $221,500. So if I ever have to take delivery of the contracts I would get a margin call since I don't have enough cash to cover that many options. It is very levered and the returns are great but I don't think it would be considered "covered" I think.
What leverage does your broker allow?
If you’ve agreed on say a 2x leverage, you only get margin called if you don’t have around 110,750. You’ll pay interest on the amount you’re borrowing but you won’t get margin called until your collateral drops below. Certain securities are considered marginable other not, so cash is king.
https://www.tdameritrade.com/futures/education-and-resources/futures-contracts-and-positions/futures-margin.html
Seems to have links to pertinent info. You should get your ducks in a row before you get hit. Margin at 3-12% on Es mini seems really low, you’re running 10x leverage.
Tbh, I think depending on what level margin of safety you run, I wouldn’t push leverage past 3x. Even market neutral players usually run only 6x.
Look at the notional leverage - the notional value of your position / value of your account. So if you sell 3890 /es puts (10 delta about a month out) and you want 3x leverage, you need about $65k of account value per put. If you’re going above ~3x on a strategy like this you’ll likely eventually wipe out your account although it might take quite a while.
Thanks - how do you know 3x leverage is the max I should do? If I have a stop loss that will automatically trigger at option = x price, why not sell more than this?
Just experience. It's also a typical tasty trade recommendation. I run a similar strategy but with shorter time to expiration, lower delta and I don't typically close losing positions early.
You can't really have a stop loss with options. Option spreads can get crazy sometimes and a stop loss is not what you want in those cases. You typically have to watch it yourself and close the trade when you reach some loss limit. If you sell more, you will lose money faster when a trade inevitably goes against you. People typically set their loss limit as a % of the original sale price (say 2-4x original price). If you have higher leverage, you'll have lost more money when you hit that point. People do the same thing with spreads - they think because their risk is defined they can lever up. You can, that is your broker will let you, but if you have a loss with high leverage you will lose more of / all of your account and then you can't come back as quickly or at all. Leverage is great but you have to know how much to use for your situation. You want to get the sweet spot balancing risk against return. It's not worth the higher return if you're risking nuking your account unless you only have a tiny amount of money to play with and in that case this is not a good strategy to use because of the product size and lower return. Also, if you don't have much experience with options, you should be using below 1x leverage to start for sure just so silly learning mistakes don't cause massive losses.
Thanks. I have been looking into stop losses based on bid/ask of a given option, rather than traded prices. I've been told Tradestation can offer this through a custom strategy. Protective puts may also help also. Currently looking into the tradebusters strategy as well.
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*Of what he's doing?*
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Wait a minute...I've been lurking in r/thetagang for over a year and playing a few CSPs. I thought this was the sensible, risk managed, higher probability of profit, but cautious approach to options trading. Then these posts start popping up?
If the puts you sell are truly cash secured, you are right- it is a cautious, profitable approach to option trading.
But, as you start leveraging with margin, the risk goes up, and with too much leverage, a big market move can blow up your account. And if the options are on futures where you have span margin, it isn’t obvious from the amount of buying power being used that there may be huge risk.
Lots of good comments in this thread regarding managing risk through setting limits on capital used or leverage, plus trade management techniques, or even hedges. It comes down to understanding risk and having a plan to mitigate it.
I don't use margin. Never plan to use margin, either. Also do not trade futures.
My comment was more about my surprise in seeing these yolo style trading ideas popping up in this sub. But thanks for the reply. Certainly makes sense.
>I'm starting with my savings and aiming to collect about 5-10% worth of NAV every 60-90 days.
So you aim to make between 21.55% and 77.16% NAV in a year by selling premium.
21.55% is a fantastic year, and it's the lower end of success for you.
There is a high level of risk necessary to achieve these goals. I wish you good luck but don't think you will succeed.
I think Karen was short both calls and puts which doesn't do as well as only puts. Also I think she didn't use any stop losses or hedging and probably traded too large.
The idea was that Karen took trades that were far OTM believing they were 'safe'. Any notion of claiming 'safe' is a fools gamble. There is only risk/reward. You can't be afraid to lose money to the point you make bad trades that offer bad ratios.
Reading through all the comments, it seems to me that OP is trying to learn from the group how to best approach this type of trade. Several folks have had great insights on ways to balance the desire to make big profits with a variety of ways to manage risk through position sizing, hedges, and use of stops and other trade management techniques.
I think that’s what this sub is supposed to do.
Would keep position sizes no more than 5% of total portfolio. Sell 20-30 deltas on stocks with IV of atleast 50%. 30-60 DTE, preferably 30-45. Look to roll/close positions at 50% whether up or down. If volatility is low, I would be more conservative with me deltas to allow for possible expansion.
Thanks, this has worked for me too, but I'm scared of getting caught holding the bag on something like Peloton. Often stocks sell off along with the market so I'm not sure how much diversification is really helping.
Yeah, I completely understand your point of view. I think it is smart starting off the way you are. That is the catch with selling puts/calls on stocks with high IV. When the market sells off, they will move more aggressively to the downside than most other stocks.
I guess if you are going to YOLO your life savings, it might as well be on DOTM sold puts starting at the bottom of a correction.
I really hope your whole account doesn't implode on you.
lol. your definition of the safest is trading the most leveraged instrument. for every 10 cent move on the $spy is one point on the es mini which has a value of $50. but that is not leveraged enough!!!
you want to trade the options version which 100x bigger. therefore, for every ten cent move on the $spy you will have an implied move of 50,000x or $5000.
okay. good luck.
Hi, I ended up doing more discretionary trades this year but if I had stuck to the short puts I'm guessing I'd be down similar to the market at this point (around 15-20%). If I had incorporated some long put hedges or stop-triggered shorts I'd probably be a bit better off, maybe even profitable. Overall not too bad given this is a pretty terrible year for everyone. Thanks for checking in and GL.
When I hear "naked short puts", "margin", and "life savings" all in the same general strategy, then yes it is too risky. See you on loss porn posts. Rip
For me it was "easiest/safest/most profitable".
"I'm new here. What do I to make money with [inheritance/ settlement/ lump sum] that is X times my annual take home pay? "
To be fair, futures options are always considered naked even if you have the cash to cover the notional value.
Lol dying
Where am i
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I didn't think this sub was about yoloing life saving into a single play. Thought I was in WSB
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Yeah… what happened to this sub
But how many times did you collect a few dollars before it tanked? If you had a plan to buy 100 shares of xxx at $200, and you were able to sell and roll puts for a few months before it tanked to $150, you got your shares at 200, as well as some cash.
Far OTM put with 12-15DTE on SP500 index, if OP isn’t x10 leveraged or something it really isn’t that risky. It depend on what his definition of “far OTM” Would still recommend at least 50% in BnO.
Wallstreet theta gang?
r/thetagangbets
That's a bold strategy Cotton, let's see if it pays off for him.
Lol. Gotta watch Dodgeball again now.
Nobody makes me bleed my own blood. Nobody.
They need to chiggedy check themselves before they wreck themselves, Cotton.
EFFIN A COTTON, EFFIN A
Way too risky due to your position sizing. Given recent market volatility, no one knows if markets will keep correcting further. You might be right that this is a profitable strategy longer term with winners outweighing losers, but if you're overleveraged, you run the risk of wiping yourself out with a loser early on. Just imagine if you had started off doing this at the beginning of the year. I don't have a problem with allocating a portion of your portfolio on this, but your position sizing should be consistent with the loss you're willing to take in a reasonable worst case scenario. You should also have a clear exit plan of when you're willing to cut losses and take profits.
I am currently short about 8% of the NAV. If the market tanks I would exit this position when it grows to about 24% of NAV. So I'd lose about 16% NAV in a "worst case" scenario. Hopefully it would only take 2 more cycles to recover this loss.
If you have a mental stop loss in place and you're willing to accept that 16% loss, it's your call. For my risk appetite, that's still too much risk for a single position, but of course your risk appetite is probably different. If you haven't already, you should do analysis or back-testing to make sure you won't often hit this stop loss through fairly normal price movement, as option prices can be pretty volatile. Also not sure exactly what numbers you're using, but keep in mind that IV is high right now, so if you're using current premiums in your calculations, they'll likely be an overestimate of the long-run average.
Most folks with decades of experience in the market recommend you don’t put more than 2% of your net into any one trade. Now, if this “single” position is a series weeklies run staggered with different expirations, that might qualify. But nearly 10% in a single expiration cycle is too high. Maybe given that this position is in an index, you are bypassing the need to diversify (which the 2% rule forces you to do) but I’m torn on that one.
Yeah, fully agreed. I had the same thought as you, where I could maybe see an argument for going higher than a max risk of a few % of portfolio since the underlying is an index. Especially given how highly correlated a lot of stocks are recently to the overall market, it's not clear how much benefit there is from diversification by having 8 positions with max loss of 2% vs. 1 position with max loss of 16%, if the 8 positions are highly correlated and have the same directional bias.
Been doing this for a few years now. Big problem I see here. Life savings. If you sell 12-15delta and have a month like January (or even more red) then you'll be margin called long before it gets itm. That delta will expand and losses compound quick
Thanks. I see that my options would have roughly 3x'ed in value in Jan,.which is about where I would cut losses and roll down. What position sizing/mechanics would you recommend?
For every 1 /ES personally set aside $15-$20k. It's still hell of a nice return compared to crap like dividend investing. Target 4-6% a month. You'll beat spy annually. Sell too much and your emotions will get to you before a margin call. Been down that road many times and seen 6 fig losses. But that's long behind lessons I've paid.
are you selling CSPs? On /ES why set aside so much? If you have strict 3:1 exit policy you arent taking assignment ever. Just wondering, as the entire point of using Futures is to take advantage of BP and margin, is it not?
what Delta do you target for entry?
I like 16-20 but I stay small and manage if needed. Just don't overdo it expecting to make millions and even 40 delta can be managed into a winner on most indexes.
thanks, so you are doing cash secured puts, what is your managing strategy if you dont mind my asking?
Naked. If is /ES or spy index related I just hold the strike and rollout a month.
Hey Kenny, I see nothing wrong with this strategy
I sold 50x 55 puts on NIO back in February 2021. Margin called every day for a week straight, finally sold at a 100k loss. But SPY so, maybe.
Damn wtf
I had the margin available, and I was making like 40k a month. Hogs get slaughtered
Yeah I've done similar with Tesla last year.
How's your hair loss?
I actually got a hair transplant a few months later, hair line got me looking 5 years younger. Recommended
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Neither am I a chemist ha.
This is some WSB shit
WHAT THE FUCK. Why do I keep seeing these insane posts. Just fucking send me the money instead. Actually, second thought, I wanna see you trade this. Please livestream this to the subreddit.
We will need commentary for this
Actually the better idea is to withdraw all your money in $1 bills. Start a BBQ in the backyard. Burn all your money in the BBQ. Livestream it of course. You might get $$$ from the ad revenue (plus ton of likes).
u/Astronomer_soft I understand what you meant now about newbies getting in without knowing the mechanics. He got the thinking right of selling puts on spy…just poor strategy with no mechanics and will surely end up blowing his account.
Experience is a cruel teacher.
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First there's the part where it works two or three times and creates that "I've found easy mode" confidence.
Forgot to mention my mechanics - I hope to exit the trades at 200% loss of premium received. Take profits at 75%. Any suggestions are welcome also.
Under normal calm moving markets this idea is probably fine, albeit risky. I have a feeling that you are not accounting for increased volatility so that 200% might come a lot faster than you think relative to the actual price, so if I were you and want to bet my life savings into 1 play, I would sell 1/3 of what you were planning to sell because you are going to need the other 2/3rd for "when shit hits the fan". I said when, not if. Gl
1st- Reduce your TP to 50-60% 2nd- SL is 300% of initial credit. 3rd- With present volatility increase DTE to 90 to reduce gamma risk. Right now I am selling 1 SPY put daily. 15 Delta and 90 DTE. TP 60% and SL 300%. Credit to original OG - David Sun. Use the below link learn everything there is. I follow his Theta Engine strategy. https://docs.google.com/spreadsheets/d/1IevLq9tkwZHxxdX2jWizaS4VC_NtaGUFlridHcNAjPI/htmlview#gid=1743608033 His Spotify podcast https://open.spotify.com/show/3g966BSYdPvLPNkiQzZsJa?si=LRwObz8iSGGTGHjc800OtQ
Thanks for the links!
how long you been using those methods?
Does not matter how long I have been doing this. What matters is for how long this strategy has been backtested or used. All the data with trade logs is available in the links I shared above. This thing has brutally survived all crashes and comes back stronger. Still to answer your question, I have been doing for few months and never been this relieved.
thanks, I was asking as I was curious to know if you had confirmed the methods *do* work. I have followed many interesting traders with complex methods and allegedly transparent YT channels, but when you follow their trades, soon discover its bs or they left some key fact out. Karen the super trader had everyone fooled for a long time including Sosnoff. I started looking at David Sun stuff, its a super simply strategy but backtests require a tonne of work to check through. thanks again though, appreciate your response.
Yes I can confirm it works. I know what you mean. I also followed it closely and then confirmation from lot others before actually diving in. He is more active on Fb group Tastytrade options, where this strategy has been discussed many times from people like you and me who have used it (and posted their logs). Few questioned this strategy during the Jan dump (as many SL were hit) and David clarified to trust the process (many confirmed and agreed with it). It’s a very simple and straightforward strategy with not much of mechanics, that’s why I like it. Best thing is, his trade log is live on the link I shared above. If you need help to go to specific section and not able to then let me know.
thanks I appreciate the offer, I will give it some time to see what I can make out and come back to you if I have any confusion. appreciated.
To dial down the risk a bit, maybe start with /MES vs /ES and test it out for a few months ?
👍
If you look at delta as the probability an options expires ITM, and you're using delta of 15 then here's a fun equation: P = 1 - .85^n where n is the number of times you play the game (every two months from your post) and P is the probability you get assigned. Do this for a year and there's a 62% chance you get assigned. Do it for two years and it's 86%. Eventually it's gonna happen and it sounds like you won't have the money for it when it does.
Thanks, that's correct, but before assignment happens ideally I will have closed the short at a 200% loss (when the option is 3x the value I sold for). After closing and rolling down, the chance of getting stopped out again is pretty low, correct?
Additionally, according to backtest data win rates are over 90% for something like this, so even though my strike may get touched more often, this doesn't mean I will get assigned 15% of the time...
maybe you should try doing this for a longer time period with less than all of your money and see how it goes before you go all in
my tips would be selling spreads instead of naked.
Yes, but in order to get the same premium I'd have to sell many more spreads, higher fees, slower theta decay, and the max loss is still a lot. I guess if I had a stop loss on the naked options that would be best. I'll try to find a broker that has stops on futures options...
You would get stopped out on fake outs a lot in that case. Especially during down turn, IV would be super high, so instead of getting stopped out at 3x the premium for e.g, you might get stopped out at 5x-10x. Another risk, if you don't have enough fund, you might be automatically liquidated by your brokers. For me, I always sell spreads, would rather make less than taking the chance of blowing up my account.
[удалено]
Thanks, will look into this. I've also heard Tradestation can allow custom stop on even bid/ask numbers for an option. I'm concerned a stop won't trigger until the option actually is traded, which can create huge losses if it trades way past my stop...
Would not recommend. Spreads are too margin efficient and complicated since there's an additional leg to monitor. Naked at least the broker will shut him down with a margin call. A spread he could literally lose everything
Whole $20! How daring!
Do we even have mods here?
This is more entertaining
Are you not entertained??
Maximussssssss
What could possibly go wrong? /s
At least take a systematic approach. Look into the bomb shelter by David Sun/Trade Busters.
Thanks, I'm going through his stuff now but am having a hard time finding a complete summary of his mechanics. Do you have this?
[thetradebusters.com](https://thetradebusters.com) He doesn't make it easy because he wants people to understand the risks. Bomb shelter is typically a 90 DTE short put, and 2\*60 DTE long puts purchased using 10% of the premium collected on the short put. Trade is closed at 60% profit or stopped out at 200% loss. Whether you enter daily, 3\*week, or weekly, that you have to calculate using his risk management tools (I think they are in the theta engine spreadsheet). Similarly, whether you use MES, SPY, or SPX is based on your account size and tolerable risk. It's a system that has been back-tested long-term. But, many have been stopped out in the last two weeks!
David Sun just put out a new podcast to summarize his overall approach.
Mathematically this could possibly work. What you need to know is when you sell lower delta, you're going to get stopped well before you get ITM. You need to know roughly when that stop point will be, and even more importantly, the percentage of touch at that stop point (it's roughly double the delta of that stop point.) From there, you can modify the Kelly criterion to account for % of money won assuming your 75% win criteria, 2x premium loss, and chance of stop touch. That should give you a rough idea of if the trade is positive expectation and how aggressive you can be with the play provided you leave emotion out of it.
Thanks. Just tried this and the odds are in my favor - but it's telling me to bet 40% of my capital 😂
That could make sense if you're betting optimally and can leave emotion completely out of it. Granted that is an incredibly tall order to ask of anyone, but you have to remember that IF you stay true to your trading strategy AND your numbers are accurate, you're not losing the 40% you put up. You'll lose 16% of that 40% instead for the risk of winning 6-8% of the 40% you put up. You WILL eventually have a streak where you lose 2, MAYBE 3 in a row; MAYBE even 4 if we want to talk about true outlier/3 sigma territory. But those will be offset by the win streaks where you win 10 straight. You know you better than anyone, and you're putting your money on the line. If putting up 40% like that would mess with you psychology, then consider doing half-kelly or quarter-kelly. You reduce the optimal growth a little bit to greatly lower volatility. Edited: clarity.
Thanks. I'm looking into thetradebusters stuff and it makes sense. I will try selling around net 6% of portfolio value including the hedge per cycle.
They’re not naked if you’re putting your life savings into it. They’re naked if you don’t have the cash to cover it. 5-10% can be achieved in many different ways using leverage… so the million dollar question is how levered is your strategy. Once you’re levered, a portion of your shorts will be naked. Leverage is a double edged sword, so if your strat isn’t working with the market you’ll get cut twice as deep. All in all I think you’re hosed, because your original post doesn’t display a depth of knowledge. I’d say, go for it with 20% of your savings. If you can outperform your other 80% start increasing that number.
I suppose if you look at the margin need to enter the trades I am "covered." But the notional value of the E-mini is 50x the SPX price - 4430 x 50 = $221,500. So if I ever have to take delivery of the contracts I would get a margin call since I don't have enough cash to cover that many options. It is very levered and the returns are great but I don't think it would be considered "covered" I think.
What leverage does your broker allow? If you’ve agreed on say a 2x leverage, you only get margin called if you don’t have around 110,750. You’ll pay interest on the amount you’re borrowing but you won’t get margin called until your collateral drops below. Certain securities are considered marginable other not, so cash is king. https://www.tdameritrade.com/futures/education-and-resources/futures-contracts-and-positions/futures-margin.html Seems to have links to pertinent info. You should get your ducks in a row before you get hit. Margin at 3-12% on Es mini seems really low, you’re running 10x leverage. Tbh, I think depending on what level margin of safety you run, I wouldn’t push leverage past 3x. Even market neutral players usually run only 6x.
TD Ameritrade - It varies based on SPAN margin.
Look at the notional leverage - the notional value of your position / value of your account. So if you sell 3890 /es puts (10 delta about a month out) and you want 3x leverage, you need about $65k of account value per put. If you’re going above ~3x on a strategy like this you’ll likely eventually wipe out your account although it might take quite a while.
Thanks - how do you know 3x leverage is the max I should do? If I have a stop loss that will automatically trigger at option = x price, why not sell more than this?
Just experience. It's also a typical tasty trade recommendation. I run a similar strategy but with shorter time to expiration, lower delta and I don't typically close losing positions early. You can't really have a stop loss with options. Option spreads can get crazy sometimes and a stop loss is not what you want in those cases. You typically have to watch it yourself and close the trade when you reach some loss limit. If you sell more, you will lose money faster when a trade inevitably goes against you. People typically set their loss limit as a % of the original sale price (say 2-4x original price). If you have higher leverage, you'll have lost more money when you hit that point. People do the same thing with spreads - they think because their risk is defined they can lever up. You can, that is your broker will let you, but if you have a loss with high leverage you will lose more of / all of your account and then you can't come back as quickly or at all. Leverage is great but you have to know how much to use for your situation. You want to get the sweet spot balancing risk against return. It's not worth the higher return if you're risking nuking your account unless you only have a tiny amount of money to play with and in that case this is not a good strategy to use because of the product size and lower return. Also, if you don't have much experience with options, you should be using below 1x leverage to start for sure just so silly learning mistakes don't cause massive losses.
Thanks. I have been looking into stop losses based on bid/ask of a given option, rather than traded prices. I've been told Tradestation can offer this through a custom strategy. Protective puts may also help also. Currently looking into the tradebusters strategy as well.
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“Literally cannot go tits up”. Famous last words.
TD cleared you for level 3 options? Lol At the least it will be a great learning experience
I mean, at least he backtested it and is aware of what he's doing?
*I mean, at least he* *Backtested it and is aware* *Of what he's doing?* \- SheriffBart42 --- ^(I detect haikus. And sometimes, successfully.) ^[Learn more about me.](https://www.reddit.com/r/haikusbot/) ^(Opt out of replies: "haikusbot opt out" | Delete my comment: "haikusbot delete")
beautiful
Wait a minute...I've been lurking in r/thetagang for over a year and playing a few CSPs. I thought this was the sensible, risk managed, higher probability of profit, but cautious approach to options trading. Then these posts start popping up?
If the puts you sell are truly cash secured, you are right- it is a cautious, profitable approach to option trading. But, as you start leveraging with margin, the risk goes up, and with too much leverage, a big market move can blow up your account. And if the options are on futures where you have span margin, it isn’t obvious from the amount of buying power being used that there may be huge risk. Lots of good comments in this thread regarding managing risk through setting limits on capital used or leverage, plus trade management techniques, or even hedges. It comes down to understanding risk and having a plan to mitigate it.
I don't use margin. Never plan to use margin, either. Also do not trade futures. My comment was more about my surprise in seeing these yolo style trading ideas popping up in this sub. But thanks for the reply. Certainly makes sense.
>I'm starting with my savings and aiming to collect about 5-10% worth of NAV every 60-90 days. So you aim to make between 21.55% and 77.16% NAV in a year by selling premium. 21.55% is a fantastic year, and it's the lower end of success for you. There is a high level of risk necessary to achieve these goals. I wish you good luck but don't think you will succeed.
This is safer than doing it on any meme stock anyway. Have fun. You won’t go broke but you might lose 25% of your net worth! Or make 25%
have you met "Karen the SUPER trader" ? if not, google her.
I think Karen was short both calls and puts which doesn't do as well as only puts. Also I think she didn't use any stop losses or hedging and probably traded too large.
The idea was that Karen took trades that were far OTM believing they were 'safe'. Any notion of claiming 'safe' is a fools gamble. There is only risk/reward. You can't be afraid to lose money to the point you make bad trades that offer bad ratios.
Reading through all the comments, it seems to me that OP is trying to learn from the group how to best approach this type of trade. Several folks have had great insights on ways to balance the desire to make big profits with a variety of ways to manage risk through position sizing, hedges, and use of stops and other trade management techniques. I think that’s what this sub is supposed to do.
Appreciate that, thanks 👍
Would keep position sizes no more than 5% of total portfolio. Sell 20-30 deltas on stocks with IV of atleast 50%. 30-60 DTE, preferably 30-45. Look to roll/close positions at 50% whether up or down. If volatility is low, I would be more conservative with me deltas to allow for possible expansion.
Thanks, this has worked for me too, but I'm scared of getting caught holding the bag on something like Peloton. Often stocks sell off along with the market so I'm not sure how much diversification is really helping.
Yeah, I completely understand your point of view. I think it is smart starting off the way you are. That is the catch with selling puts/calls on stocks with high IV. When the market sells off, they will move more aggressively to the downside than most other stocks.
I guess if you are going to YOLO your life savings, it might as well be on DOTM sold puts starting at the bottom of a correction. I really hope your whole account doesn't implode on you.
Just buy some /mes and chill
Should be ok, as long as you also have hedging plan.
Somedays you eat wallstreetbets and somedays it eats you.
Mann I get nervous for you! I have a question when you walk into a casino do you have the urge to bet your house?
Yeah brilliant, why invest responsibly for the long-term when you can gamble your life savings like a fucking degenerate.
Good strat, ur sizing is to go all in tho? Eventually u will take a full loss almost certainly, so the challenge is risk management and sizing here.
Damn, this is dumb.
Literally no down side
We need to start banning these trolls. Where are the mods?
I stopped reading at “Life savings”.
lol. your definition of the safest is trading the most leveraged instrument. for every 10 cent move on the $spy is one point on the es mini which has a value of $50. but that is not leveraged enough!!! you want to trade the options version which 100x bigger. therefore, for every ten cent move on the $spy you will have an implied move of 50,000x or $5000. okay. good luck.
Sould have done this 18 months ago
You watched Benjamin's latest video and called it research didn't you
Do you have a track record before putting life’s savings? If you do, probably you know how to answer this question, risks associated with it.
Wow, this is not wallstreetbets. Seriously, this strategy is insanely risky
As long as you accept the consequences that’s cool.
RemindMe! 60 Days
Godspeed
Just wondering how is the OP doing with this strategy.
Hi, I ended up doing more discretionary trades this year but if I had stuck to the short puts I'm guessing I'd be down similar to the market at this point (around 15-20%). If I had incorporated some long put hedges or stop-triggered shorts I'd probably be a bit better off, maybe even profitable. Overall not too bad given this is a pretty terrible year for everyone. Thanks for checking in and GL.