StockFetcher Forums · Filter Exchange · OPTIONS STRATEGY - SELLING WEEKLY PUTS<< 1 2 3 4 5 ... 7 >>Post Follow-up
2,025 posts
msg #117823
Ignore alf44
1/20/2014 10:20:11 PM


... nice posts "JJ" !


9 posts
msg #117828
Ignore edellner
1/21/2014 1:54:55 PM

Kevin, My recommendation - use a good options broker. The best, imo, is ThinkorSwim

From your first post, point 3...
"3. Sell puts at a strike price not likely to be reached prior to expiration - my thinking on this is to use a strike price that is one weekly ATR(5) below the current weekly close as the strike price for the next week's weekly options. So on Monday morning you sell puts for this week's options at the strike price that is 1 weekly ATR(5) below the previous weekly close.

Statistically these expire worthless about 90% of the time."

1) In an actual trading situation, you can use the option Delta to approximate the percentage chance of being in the money. So a put strike with a delta of -.10 has an approx 10% chance of being ITM and/or 90% chance of being OTM.

2) Pay attention to the VIX. Right now, the VIX is very low, which means the premium you receive will also be low. Credit spread strategies are best employed in a higher volatility environment. There are opptys when the IV gets pumped up on an individual stock due to an event (typically earnings). This morning I sold a JNJ FEB 92.5 / 75 Put credit spread for 1.37. That is unusually high for a laid back stock like JNJ, but they missed earnings. I am already up .30 on the trade in 3 hours. If I had sold a naked put, the margin would have been $9,250. The put spread cost m $1,750 in margin. By the way, selling a naked put (even a really wide put spread as im my example) implies you wouldn't mind owning the stock.

3) Do lots of small trades as opposed to one larger trade to increase the number of trading occurrences and to improve diversification. Also, balancing call and put credit spreads will limit your option portfolio delta risk. Aim for delta neutral to improve daily performance no matter which way the market moves.

4) Close down the trades early by buying back you options after you have made 40 to 60% of the original credit. "The first 50% of the move is much easier to get than the last 50%".

5) If you are interested in trading credit spreads, tune in to They present a world of information about selling options every day.

102 posts
msg #117842
Ignore jimmyjazz
1/22/2014 9:58:22 AM

Good post, edellner. Question:

"3) . . . Also, balancing call and put credit spreads will limit your option portfolio delta risk. Aim for delta neutral to improve daily performance no matter which way the market moves."

I have been working on a pair of strategies which seek out small pullbacks against the trend, either long or short. Backtesting indicates that I might trade both strategies for 25% - 35% annualized gain over time. (In other words, I am long a few stocks and short a few stocks every day, and basically swing trading to grab a percent or two over the course of maybe a week. Rinse and repeat.) I would like to use long puts and calls in practice, but it isn't necessary.

My theory here is that being roughly long and short the same $ amount should reduce my exposure to sudden market shock (which is usually down, but not always). Would you agree?

4,599 posts
msg #117844
Ignore Kevin_in_GA
1/22/2014 11:27:31 AM

Tracking it here, the following puts will be sold at the open on Tuesday with expiration on 1/24:

AAPL 520 PUT - current close is 540.67, option pain is at 547.50

AMZN 385 PUT - current close is 399.61, option pain is at 400

GOOG 1115 PUT - current close is at 1150.53, option pain is at 1120

PCLN 1130 PUT - current close is 1178.04, option pain is at 1175

AAPL at 557

AMZN at 403

GOOG at 1161

PCLN at 1212

All of these will expire worthless this week, but the protection offered using a credit spread is most likely the best way to play this strategy.

One of the cool things Stratasearch can do is to look at closing prices for a specific day of the week and compare them to the open/close for any number of day prior. For AAPL using the Thursday close (of the new options period) - the weekly ATR(5), by the following Friday close the option at the strike price usually expired worthless. Since 12/31/1999 (711 periods) the option expired ITM only 39 times - thus it expired worthless 94.5% of the time over the last 15 years.

9 posts
msg #117845
Ignore edellner
1/22/2014 11:44:51 AM

"My theory here is that being roughly long and short the same $ amount should reduce my exposure to sudden market shock (which is usually down, but not always). Would you agree?"

Delta neutral is very easy to calculate with long / short stock, since a stock's delta is always 1. If the stocks in your long/short portfolio were near the same price, you would be approx delta neutral by using the dollars invested as a guide. However, you won't be delta neutral is the prices vary widely. Example:

+100 shares at $28 / -100 shares at $30 = delta neutral = approx same dollars invested
+400 shares at $10 / - 100 shares at $40 = +300 delta = approx same dollars invested

So dollars isn't the best way to judge delta neutral. Plus, the goal of delta neutral is best used across several positions in a portfolio. In the example above, it may make perfect sense to be + 300 delta for that specific trade. Maybe 2 other trades could be structured at -150 delta each to make the portfolio delta neutral, not each trade.

3 posts
msg #117846
Ignore jkinghome1969
1/22/2014 12:03:37 PM


One thought - have you looked into using binary options for your strategies? For example using Nadex as the broker (don't waste your time with the other binary services). I use them for a couple of strategies that have certain statistical edges on indices and commodity futures, without the need of margin requirements. Great to build up small accounts with limited risk. While you can't do individual stocks, I think you could do well applying this to index binary options.

I would be interested in how you compare daily prices in SS, I have been using SS but not sure how you easily compare day prices. Could you let me know.

4,599 posts
msg #117848
Ignore Kevin_in_GA
1/22/2014 12:42:10 PM

You use the dayofweek() function. Monday = 1, Tuesday = 2, and so on through Sunday = 7. So I simply said

dayofweek() = 5 and

close < ref(close,-6) - period(weekly,atr(5))

If any trades were registered, it was because the Thursday close was below the prior Thursday close - the volatility (when and where I am assuming you might have sold your put or vertical spread).

4,599 posts
msg #117858
Ignore Kevin_in_GA
1/22/2014 9:14:32 PM

Just put in two paper trade orders for the 31 Jan expiration options (I'm using TradeMonster for testing this strategy):

SELL APPL 530 put (10 contracts)
BUY AAPL 520 put (10 contracts)

SELL AMZN 390 put (10 contracts)
BUY AMZN 380 put (10 contracts)

Potential loss on each is $10,000 and the potential win is about $2150 for AAPL and $2450 for AMZN. The win ratios are both well above 90% for having these expire worthless.

Put in as market orders to be filled tomorrow at the open - I'm not really worried about getting best pricing as much as I am in validating the overall strategy for determining the right strike price for the puts.

101 posts
msg #117859
Ignore campbellb75
1/22/2014 10:47:28 PM

For what it's worth, AAPL reports earnings on 1/27 after the market closes. When trading spreads it's best to avoid earnings reports.

4,599 posts
msg #117863
Ignore Kevin_in_GA
1/23/2014 8:37:30 AM

I know, but this is a paper trade experiment right now. Statistically there has not been much evidence that earnings will drive the stock price below the proposed threshold of weekly close - weekly ATR(5). Usually AAPL surprises to the upside when earnings are announced, although that was mostly under Steve Jobs.

The stats are what they are, so I'll play this and see what happens. No real money on the table right now.

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