Conservative option strategies, what did you buy or sell today?

[fenders53]

(08-21-2020, 08:32 AM)NilesMike Wrote: The only 2 ways that I have been able to profitably trade VIX options is

1) Buy a 60+DTE call when VIX trades below prior month's low. You will get a pop or at worst lose a little bit.

2) When VIX trades 12.50-13.50 buy a call with 6 months expiration. You will get a good pop.

If you OTM put becomes ITM, look out.

YMMV

If I get exercised can I not hold the VIX position like any other stock?  I don't see a lot of downside in the VIX from here.  I suppose you would have to except my thesis that the market can't go on forever not reflecting economic reality.  Seems to me some volatility is inevitable.  Am I missing something basic here? generally speaking I don't buy options. I will skip it if that is required to make a profit.

[NilesMike]

(08-21-2020, 09:43 AM)fenders53 Wrote:

(08-21-2020, 08:32 AM)NilesMike Wrote: The only 2 ways that I have been able to profitably trade VIX options is

1) Buy a 60+DTE call when VIX trades below prior month's low. You will get a pop or at worst lose a little bit.

2) When VIX trades 12.50-13.50 buy a call with 6 months expiration. You will get a good pop.

If you OTM put becomes ITM, look out.

YMMV

If I get exercised can I not hold the VIX position like any other stock?  I don't see a lot of downside in the VIX from here.  I suppose you would have to except my thesis that the market can't go on forever not reflecting economic reality.  Seems to me some volatility is inevitable.  Am I missing something basic here? generally speaking I don't buy options. I will skip it if that is required to make a profit.

Nope, VIX is cash settled like SPX.

[NilesMike]

(08-21-2020, 08:50 AM)crimsonghost747 Wrote:

(08-21-2020, 08:32 AM)NilesMike Wrote: If you OTM put becomes ITM, look out.

Any particular reason for this? 
Has it been difficult to roll them forward if it ends up ITM close to expiration?
I've never traded it before but it does look to pop up on a regular basis, so rolling forward would logically give you a tiny bit more cash and more time to wait for that pop.

Bid/Ask can get quite wide.
VIX option prices are actually based on the front month VIX future.
If the VIX term structure goes into backwardation, you will pay for rolling.

Much simpler to trade /VX if you wish to trade volatility. It too is quite hairy.
That is why I buy the option with enough term to "guarantee" that I will get a profitable pop.

[vbin]

Sold a ROKU put couple a days back. looks like it will expire out of money.

[NilesMike]

Looks like today will be a good day to buy back some calls.

[fenders53]

(09-21-2020, 06:23 AM)NilesMike Wrote: Looks like today will be a good day to buy back some calls.

I missed this.  I have been following your advice and not riding option sells down to zero.  This volatility is nice when it allows you to redeploy in a few days.

[fenders53]

First of all, NilesMike please help me with this, but r Refrain from taking it to fancy option levels. Let's skip the complicated "Greek" math for now as it isn't helpful for noobs. I have been asked to start again from the basics. We are just explaining things here, not trying to amaze as that will just discourage the folks we are trying to help. Feel free to post up a simple one contract trade to help explain this.

We gotta start somewhere and I just executed a T put sale just now as Stockguru asked about. For some context I own 260 shares long. I would be comfortable owning 500 shares and less comfortable owning 1000. I have options expiring most every week. I prefer to spread the expirations out as it is just easier to manage. You could sell 10 contracts but we are selling one for simplicity of explanation. I believe the likely bottom for T is 26 in a rough market. I believe the dividend is secure. It goes Ex-DIv in a few days which is ALWAYS a consideration when buying or selling option. T RSI continues to be oversold. Overall this is a decent risk/reward trade. I would prefer to execute it post dividend but this is just an example.

Sold a T put strike 28 expiring OCT 23rd. It is out of the money so the $57 premium is all extrinsic value. Does everyone know what that means? Don't be afraid to ask for explanation of any term used here.

Mostly I did this trade for illustration as the market is up today, but the date fits into my plan well enough. I have T options expiring most every week. I don't stack up 5 or 10 on one date. Just a personal preference, not right or wrong.

If T is over $28 and we hold it to expiration this options expires worthless and we do it again. If T dips below $28 as expiration nears we aren't stuck but we have to make a decision. Spoiler alert... if T runs up $2 in a week we may buy it back very cheap and move on to the next opportunity. If it goes into free fall we'll manage the option for better or worse. When things go bad you can save yourself half the time, but this isn't risk free. You have to be comfortable with the worst case scenario. I may be forced to buy 100 T shares at $28, but I won't do that if I can roll it down to a somewhat better entry. Option premiums almost always far exceed dividend returns. If you do this with many stocks you WILL be managing a few trades every month that didn't go your way. It's a pain some months but worth it because the income FAR exceeds dividends most months. It's the only reason I bother with this strategy.

Speculative option sells are more lucrative. We'll do that when the time is right

[NilesMike]

I'll try to help along regarding basic put and call selling the way I do it (or at least should be doing, discipline is always important when dealing with $$$)

1. I ONLY trade options on stocks that I own or would like to own.

2. The options are either cash secured (puts) or covered (calls). No margin use or needed for these.

3. I sell the option 30-45 days to expiration, sometimes I'm only in them for a week or 10 days. That is when the market decides to accommodate my goals.

4. I sell puts when the stock has moved down, either near the bottom of the range or just a couple of day decent down move. Why? I can more comfortably sell closer to the current strike price. (most premium and most theta to decay)

5. I sell calls after the inverse. Moves to the top of a range or a good couple of decent up days. Why? I will most likely have a profit on the stock at that point, I can add some option premium to sweeten things and again more premium near the money and more theta to decay if the stock decides to take a rest and pull back a while.

6. Exits. More art than science but if I can get 50% of my premium in the bank, I close the option position.

7. Assignment. I do not roll options. If I don't have the chance to take a 50% winner I will let it run towards and to expiration. The goal of every covered call is to get called away (I know some disagree but most pros go with that thought process. If every covered call I put on gets called away, I welcome the high class problem.

Same with being put stock, I then put on a covered call. With the stocks I use, there are dividends to be aware of as well. I have closed options if it was expiring after ex div date. I DO try to get as many dividend payouts as possible. Essentially that is the only managing I do after entry.

With this strategy I have collected the average of a dividend payout about every 3 weeks.
I have also found that the extra engagement with these stocks keeps me on top of them better.

[vbin]

You also need to check the contagi's value proposition. I usually also check( only on big options) if current value/# of days to expiration is more in current option I have or the new one I want to roll forward to.

[NilesMike]

(10-05-2020, 01:22 PM)fenders53 Wrote: First of all, NilesMike please help me with this, but r Refrain from taking it to fancy option levels. Let's skip the complicated "Greek" math for now as it isn't helpful for noobs. I have been asked to start again from the basics. We are just explaining things here, not trying to amaze as that will just discourage the folks we are trying to help. Feel free to post up a simple one contract trade to help explain this.

Missed the part of posting an example.

KO Bought in July for 45.35. Looked like good support area.

9/2 I sold a 50 call for .50 because 49/50 looked like a top or resistance area, expiring 9/11.

9/11 the option was worth .30 so I bought it back to avoid early exercise because 9/12 was ex div. Collected my .20 option money and .41 dividend.

9/14 the stock was 51+, I sold 52.50 strike for .81 expiring 10/16.

9/21 KO dropped to 49, bought call back for .39 (keeping .42)

9/28 KO was at 49.00. I sold OCT 16 $49 call for 1.26

10/1 that call was only worth .86 so I bought it back (keeping .40)

3.1% return for the month from options/dividends.

It doesn't take a lot of time, check prices a couple times a day on phone to keep current or catch the market news on the radio, that's it.

[fenders53]

(10-05-2020, 07:43 PM)NilesMike Wrote: I'll try to help along regarding basic put and call selling the way I do it (or at least should be doing, discipline is always important when dealing with $$$)

1. I ONLY trade options on stocks that I own or would like to own.

2. The options are either cash secured (puts) or covered (calls). No margin use or needed for these.

3. I sell the option 30-45 days to expiration, sometimes I'm only in them for a week or 10 days. That is when the market decides to accommodate my goals.

4. I sell puts when the stock has moved down, either near the bottom of the range or just a couple of day decent down move. Why? I can more comfortably sell closer to the current strike price. (most premium and most theta to decay)

5. I sell calls after the inverse. Moves to the top of a range or a good couple of decent up days. Why? I will most likely have a profit on the stock at that point, I can add some option premium to sweeten things and again more premium near the money and more theta to decay if the stock decides to take a rest and pull back a while.

6. Exits. More art than science but if I can get 50% of my premium in the bank, I close the option position.

7. Assignment. I do not roll options. If I don't have the chance to take a 50% winner I will let it run towards and to expiration. The goal of every covered call is to get called away (I know some disagree but most pros go with that thought process. If every covered call I put on gets called away, I welcome the high class problem.

 Same with being put stock, I then put on a covered call. With the stocks I use, there are dividends to be aware of as well. I have closed options if it was expiring after ex div date. I DO try to get as many dividend payouts as possible. Essentially that is the only managing I do after entry.

With this strategy I have collected the average of a dividend payout about every 3 weeks.
I have also found that the extra engagement with these stocks keeps me on top of them better.

This is EXACTLY what I had in mind for now Mike.  We don't do this exactly the same way, but the end goal and results are similar.  Reliable income-less risk.  

I'll emphasize a few of your points.  If we drop a term you don't understand just ask.  I am going to try to ekeepit simple.

1.  I HAVE to be willing to own the stock, and better yet be excited about it. 

2.  I also sell cash secured puts and covered calls only.  No margin ever!  The day will come when the market teaches you a hard lesson that can devastate a port.  

3.  Most of my options are also initiated in the 30-45 day range.  Option premiums begin to decay at an increasingly faster rate in this range.  I do sell a few weekly options.  I don't desire 20 trades with the same expiration date.  Six is bad enough if I manage them (sometimes roll forward). I mix in some trades on the off weeks. (Weekly options some stocks offer) 

4.  Strongly agree with #4.  Sell near the bottom of the trading range, lowish RSI.  Chances of success greatly increase.  You absolutely can make money doing this with a momentum type style.  It's not for me.  Main point is selling near the current price.  Premium (income) received is much higher.  You could make a living selling them more conservatively though.  You could sell boring way out of the money puts on T and KO and still exceed the dividend yield over the course of a year.            

5.  I'll hold off on covered call comments.  I'll allow a real world trade to be exercised and discuss it then.  

6.  Exits is a biggie.  I also believe it is more art than science.  Easier to sell then buy back (if you choose to) because the numbers are in front of us.  The example T trade yields about 2% for three weeks exposure risk.  I used to just allow them to expire 95% of the time.  Mike convinced me to close them after a desired profit is achieved.  He tries to get 50% and moves on.  I tend wait for 70-80% if I am not afraid of the stocks near-term price movements.  I'm not particularly concerned who is "more correct" as the overall market trend gets a big vote and we never no what next week brings.  We'll discuss this subject a lot going forward.   

7.  Assignments, better left for real time/ real trade discussion.  We can share our thought process.  I probably roll at least 10-15%% of my puts and calls forward. It depends on the premium available at the time.  If I can roll the strike price down, or get another months premium, I consider it.  If not, I move on.     

Finally, there is going to be some disagreement on best practices here.  I see no problem with that as long as you share your logic in simple terms.  We are a little early to share complicated strategies.  (I do love the conversation but a few weeks from now is probably better IMO)

[fenders53]

P.S.  I am about 10-15% too much cash today.  I would really like to sell a few puts on a stock like MSFT, QQQ etc, but the time isn't right.  Discipline is VERY hard. Hopefully later in the week I can share a more exciting trade.  I have a couple positions I will like consider rolling.  I'll debate that with Mike here.  The election, stimulus, unemployment rate etc, and all the associated drama tells me we will have some market volatility.  Right or wrong, you gotta have a thesis to feel more comfortable with your trades in the short-term. Forcing a trade can cause more bad decisions a week or two from now. This isn't the same as my DGI port. I can't buy and close my eyes for a year. Options expire soon.