Conservative option strategies, what did you buy or sell today?
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Conservative option strategies, what did you buy or sell today?
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10-06-2020, 08:46 AM
(10-06-2020, 08:08 AM)fenders53 Wrote: 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. There is no one size fits all. My strategy is an amalgam learned from several people and fits my style. People should take away bits and pieces and add their own seasonings-LOL
10-06-2020, 09:04 AM
(10-06-2020, 08:46 AM)NilesMike Wrote:(10-06-2020, 08:08 AM)fenders53 Wrote: 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. I'm convinced what we are doing is sound enough that you don't have to get it perfect to live a happy investment income life lol. I am no investment pro for sure, but I'm sure I am well over 1000 trades the past two years. If it was a bad idea I'd likely know by now.  As boring as it is, running through some T and KO trades is probably best as they won't freefall in a week no matter what the market does. And I want to keep emphasizing this is NOT all we do with our ports. While I think I mostly could just do this with my entire port, that is an awfully bold statement knowing the market could crash some month soon, and stay down for years. If the market flies to the moon this strat will usually underperform going all in long instead. We'll navigate the big swings when it happens.
10-07-2020, 10:55 AM
I am going to have to make a move soon or my income is going to be down this month for the first time in awhile. This patience thing is hard.
I was much more content to leave cash undeployed when I could get a 2% APR yield not so long ago. This is one disadvantage to mixing in a lot of 2-3 week option sells in with my strategy. I very much like having considerable money to sell new options with every Friday, but there are definitely times I am stuck sitting on my hands. Plenty of long shares so not like I am missing the fun on up days I guess. I find myself hoping the market has a few bad days every Monday or Tuesday so I can sell puts. On a side note I've had a lot of success the past six months with some more speculative options like WY, OLN etc. I think I am going to stop pushing my luck and put a little more emphasis on my core positions. The premiums won't be as good but I think I'll feel more comfortable getting stuck with blue chip shares. I love the volatility but I'll sleep better getting stuck with excess PEP and JNJ shares.
10-07-2020, 02:44 PM
Fenders you have brought it up a few times that you have made ~1000 option sells/trades in the last 2 years. Is that the time frame you started making option trades? What got you started in options?
(10-07-2020, 02:44 PM)john Wrote: Fenders you have brought it up a few times that you have made ~1000 option sells/trades in the last 2 years. Is that the time frame you started making option trades? What got you started in options?My first option trade was in 1995/96. I did enough reading up front to know I would likely lose all my money buying calls (due in part to my lack of experience then). I sold covered calls through the tech bubble. It worked well of course, until it didn't when some successful but overvalued companies went away around 2001. For the next 15 years I was mostly a long investor (still am). Option trades were minimal as much of my port was in a SPY fund. Trading individual stocks was just a hobby. Occasional option trades. Fast forward to today. In 2018 I decided to get serious about trading options for income. I am approaching full retirement and knew I better find out if this is statistically likely to succeed well in advance of depending on the money. That requires some time, a large volume of trades, and probably most of all... how well does it work in all markets? Any fool can sell 10 puts in a bull market and call it a 100% success, or pick the wrong month and have a 90% fail rate. So anyway here I am a few years later. I've endured two hard market drops, and a SPY that is sideways most of the past 2 years with a strong surge in the Nasdaq. When the market flies I make less money. When it drops I lose WAY less. That is attractive for a soon to be 58yr old man. The large amount of trades has taught me how to control risk. I can exceed my dividend income and take virtually no risk. I can get 5X that amount with considerable risk. In short I now know what I am getting myself into. Finally, although I am sticking to what works for my risk appetite, this strategy is ALWAYS open for refinement. Mike and I converse some on the side. We do things quite differently but the core principles are the same. (Stealing money for the gamblers and collecting insurance premiums from the hedgers). I respect his ideas and have altered my strategy this year. There is always room for improvement. I should go count my trades now and see how addicted I really am. Edit- About 55 options sells per month is the average the past 6 months. Usually a small number of contracts. Doesn't include trades to close a position or roll an option forward. That number is less meaningful. Keep in mind selling a single put contract in QQQ and MSFT and LMT has as much impact to my port as 20 smaller trades. Many of my option sells are in lower priced conservative stocks like T-KO etc.
Good report Fenders!
My goal is multiple income streams, will be 61 on Saturday. The bulk of income comes from working, followed closely by my rental properties. Dividends come next, followed by option trades. The rentals are strictly cash flow with very minimal appreciation. I buy and sell options, most often sell but buying has had explosive big winners as well. 2 sides of the same coin. One could probably replicate Fenders and my option selling by just using an index to avoid single name risk. Not as exciting but the numbers would be there. I also trade ES futures after hours. Very small size but adds about $400 per week. One of my main goals is simplification in case of my demise. The futures strategy is very simple, the dividend part is simple enough (don't sell unless dividend is cut), I have a crew that takes care of the rental properties. So, upon my demise, options are the only component that would go away. The bulk of my investing (long term) is based on a very simple end of month strategy. Again, find your own comfort zone and have at it. Good luck to all!
10-08-2020, 08:46 AM
Nilesmike and I disagree on the theory of rolling puts options forward. I will share success stories later but my EGO isn't that big and I'm not trying to amaze anyone here. You can take or leave my advice. but you will deal with this decision if you sell enough options. In the interest or fair and balanced reporting, here is a bad trade where I tried to make lemonade. I sure won't call it a win but I can't see the future. Here is what happened. I sold a few options in RDS with strikes at 30 and 27.50 starting in July. OMG why do I get sucked into big oil but here it is. Obviously the 30 strike was the worst. Just a single contract because my inner voice said go slow in case this is another potential bad oil stock adventure. So only $3K of capital is tied up in oil fiasco episode 5 (at least lol). I'll spare you the exact dates.
So RDS was trading around 31.50 IIRC and I was cool with a $30 assignment. I was OK with paying $31.50 to be honest. Sold and rolled puts something like this from July. The strikes are 2.50 apart so I am already very limited. Sold for 1.15 Buy back a month later for .95 so I am up .20 Immediately resell for 1.55, now up 1.75 Buy back for 3.70 and resell another month for 3.70, still up 1.75 on premiums Just got assigned today at $30. Stock is worth about $24.50, my basis is $28.25 so down $3.75. Hindsight is 20/20 but I could have just took about a $2 loss a month ago. I also could have just skipped the options and went long at $31.50 because I thought this was a good entry. Point being it could have been worse. So now my choices are... 1. Sell the 100 shares at a loss and move on? 2. Hold the shares and hope for a bounce? Where the hell is the bottom for RDS? 3. Selling a call at a higher price would be my normal reaction but the strikes are too far spread like a lot of lighter traded ADRs. Not a real option unless I wait and hope oil stocks bounce. I'm not optimist that happens soon. 4. Sell an in the money option, accept some of the loss and buy myself give the stock a chance to bounce and make it better? My success rate with number 4 is well over 50%. We'll see what I do. I am willing to hold RDS long-term but if I can lower my basis with extrinsic premiums I will likely do it. I could share dozens of success stories but the downside is a more useful conversation. I'd would be happy if this was a bunch of contracts. Its just $3K. Be gentle Mike. . .
10-08-2020, 06:21 PM
I'll be gentle.
First, if you HAD to make an oil play and use options, USO would have been a way better choice. Nickel wide bid/ask tons more volume and strikes every dollar. Second, the $30 premium was too low IMO for oil. Even T pays better. With such a low premium, you hardly get a chance to take it off early and make any money. Third, as a defense, the most I would do, in the words of fellow Chicagoan Dan Sheridan, is buy a stinkin' put if it's running down on you. Might have taken a small loss or even made money in your example. Fourth, when a trade no longer accommodates your original thesis, IT'S OVER. You are not alone in your process, far from it. my late friend used to defend every single position so that no underlying got the best of him. Waste of time and tied up capital, but he wouldn't change. Lastly, I know we like the action, engagement, excitement whatever of these positions but in all honesty it would probably be better to sell put spreads on expensive index products. a RUT put spread 1560/1540 has 2.10 credit. If it goes nowhere or even up or down a smidge on Monday you can take it off and keep a buck (10-08-2020, 06:21 PM)NilesMike Wrote: I'll be gentle.Good info. I only played USO once. As luck would have it, right into the craziness of sub zero monthly oil contracts. By some miracle I made money and cashed in mere days before it got stupid. TBH, I didn't know what the hell was really going on. My biggest problem with oil is my inability to understand what actually drives the price. My thesis is it's headed towards being a dying industry in my lifetime so I don't have the motivation to get truly informed. So small trades and it's just gambling I suppose. How stressed would you be if you got in a little deep in KO and it dipped $5 suddenly? Probably the same as me, I wouldn't lose a minutes sleep. I'll wait a few months if necessary and sell covered calls against it until I die lol. I heeded your advice and don't defend every position to the death. If I know the stock, I can roll it forward a month with a high success rate. It bounces a little and it;s good again. One point I may have not made. I need some more premium, or a drop in strike to entice me to roll it. If I can't get that, it's time to cut my losses as I am just tying up capital I could sell a new put against. The dollar value of the position matters too. The RDS put is a good example. I dipped in to my cash position $3K to let it ride. My cash yields peanuts now. A year ago it would be returning 2% risk free. Todays rate reality matters some. And I am rarely rolling more than 2% of my port value. Probably sounds like I am justifying bad initial decisions, but my rationality is usually thoughtful. A year from now I will have a stronger opinion on the subject. For now it's just don't defend a position without a reasonable expectation it corrects itself soon. I am probably defending one position per week since I sell a lot of options for just a few weeks. I just rolled a TLT option forward today. Dropped the strike a bit and a little new premium. Certainly not as good as a new TLT position but still beating a dividend premium.
10-08-2020, 08:57 PM
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Good info. TBH, I didn't know what the hell was really going on. My biggest problem with oil is my inability to understand what actually drives the price. My thesis is it's headed towards being a dying industry in my lifetime so I don't have the motivation to get truly informed. So small trades and it's just gambling I suppose. How stressed would you be if you got in a little deep in KO and it dipped $5 suddenly? Probably the same as me, I wouldn't lose a minutes sleep. I'll wait a few months if necessary and sell covered calls against it until I die lol. Probably sounds like I am justifying bad initial decisions, but my rationality is usually thoughtful. A year from now I will have a stronger opinion on the subject. For now it's just don't defend a position without a reasonable expectation it corrects itself soon. I am probably defending one position per week since I sell a lot of options for just a few weeks. I just rolled a TLT option forward today. Dropped the strike a bit and a little new premium. Certainly not as good as a new TLT position but still beating a dividend premium. [/quote] My son is in oil and the freakout was a lack of storage, so futures had nowhere to go if you accepted delivery, thus the collapse. KO, HD, MCD etc. dropping isn't a concern as you've said. Your initial decisions are good, based on what you perceive, sometimes the follow up that comes can no longer be supported by the original thesis. It becomes a new and different trade. Not necessarily a bad trade but nay times people think it is continuation of the original trade. It is not. Regarding beating the dividend, I base my performance on my goals and needs not if it beats the market or anything else for that matter. It has to work for ME, that's it. I hope some others are gleaning a thing or two from these tomes-LOL
10-09-2020, 07:26 AM
Like you, beating an index isn't something I concern myself with. However I do consider my option "basket" in competition with my dividends. I need to exceed my dividend return %. As we know that isn't difficult at all, even trading the exact same stock. If I am rolling a stock with no additional premium, I am losing income to better choices. Divs, cover call premiums etc.
Another point we should discuss is ex-div dates vs expiration dates. It does drive my decisions some, especially on shorter term plays, but I need to go to work now.
11-14-2020, 08:32 AM
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