January 30, 2026 – Happy New Year, and welcome to a new installment of the Options Trading Series. I hope you had a peaceful Christmas break and a good start to the New Year. I certainly did; I took my family to South America, where we visited Argentina, then took an amazing cruise to the Patagonia (Southern Argentina and Chile), the Antarctic Peninsula, the Falkland Islands, and Uruguay. But now life is back to normal, and I’m back in business again. And as usual, at the beginning of the year, I publish my annual options trading strategy review. In short, it was another profitable and prosperous year. Let’s get started and look at a quick strategy summary, performance, and strategy changes and updates…
2025 Options Trading Strategy Details
For readers who are new to this topic, here is a quick recap of what I’m doing:
- Every trading day, I write (=short) very short-dated (1DTE) CBOE puts on the SPX index. This has been my bread-and-butter strategy since 2011.
- In addition to the overnight puts, I monitor the market open and write additional SPX index 0DTE puts, which expire on the same day. I would usually take a break from the 0DTE puts if the market opens down significantly, when my overnight puts are in danger of losses, and I don’t want to add even more downside risk.
- I write 0DTE calls on the SPX index. I also write 1DTE calls very, very occasionally. But I would only do so on Thursdays before the third Friday of the month, when I can write calls for the AM closing.
- In terms of sizing, I sell around 12-14 1DTE puts (overnight), 6-8 0DTE puts (intra-day) at the market open, and 20-24 0DTE calls (intraday) at the open. Think of the sizing as #Calls = #Puts, and for the Puts, I pick around about a 2:1 ratio for the 1DTE to 0DTE.
- Occasionally, I write longer-dated naked puts, usually 30 to 180 days to expiration. I would sometimes call those LEAPS, though, purists would object that LEAPS normally refer to options expiring a year or more in the future. Of course, if you’re selling 0DTE and 1DTE (my record being a 0DTE call with 4 seconds to expiration!!!), everything longer than 30 days feels like a LEAPS. Earlier, I also sold long-term put spreads, but I found that the naked put route, very far out of the money, is the way to go. This is not daily or at any other fixed time interval. I always wait for a significant market blowup with high volatility and “oversold” technical indicators. The strikes are often wildly OTM; I routinely sold puts with strikes in the high 1000s or low 2000s when the SPX index was in the 6000s. I target a premium of around $0.70-$1.00, though, during big enough drops like in April 2025, you could go well above that. Back in 2024, when I still sold credit spreads, I had a few spreads with a net premium of over $6 during the August 5 volatility spike.
- Also, check out the Options Landing Page for more info.
Options Trading Strategy Rationale
My options strategy has been working for close to 15 years now. The opportunity consists of catering to two types of investors: 1) overly fearful investors who tend to overpay for downside insurance through puts, and 2) overly greedy and optimistic (delusionary?) investors who overpay for calls, i.e., a gamble with low wagers but large profit opportunities. In other words, I’m selling insurance and lottery tickets; both lines of business are usually mind-blowingly profitable.
Maybe not every second of every day, but at least occasionally, certainly in an annual strategy review, I step back and ask myself if that premise and this profit opportunity are still valid. Clearly, the returns still look good (no calendar-month losses since 2022, not even in April 2025), but I’d like to see some independent evidence as well. To that end, I monitor implied versus realized volatility. For example, in the chart below, two lines are plotted: 1) the realized 21-trading-day (roughly a calendar month) volatility and 2) the VIX index from 21 trading days prior.
On average, implied volatility is well above realized volatility. Thus, option buyers overpay for insurance. This insight is not entirely novel. It’s the insurance industry’s business model: an insurance company sells you insurance, but the expected payout is less than your premium. This feature again showed up in the data in 2025. We had that crazy volatility spike in April, surprising when it happened, but not so surprising in hindsight. However, even with that event, realized volatility was 3 points lower than implied.
The 2025 experience was in line with historical averages. If you’d like to see how this trend played out over the longer term, below is the same chart, going back to 2000, with a similar 3-point gap between implied and realized volatility.
Of course, I am selling much shorter-dated contracts than 21 trading days, but the same feature is also present in the 0DTE and 1DTE data.
But let’s now get to the trading results…
Options Trading Strategy Results
The total income from options trading came in very close to the 2024 total. In fact, without some of the silly losses in April, more on that below, I would have achieved a nice cost-of-living adjustment over 2024. But here are the results in detail:
0DTE and 1DTE Options
Here are some stats of the 0DTE and 1DTE contracts I traded: A total of just over 10,000 contracts. The notional of all contracts (the sum of the strike times multiplied by 100) was above $6.5b. I sold options for a total of $121k and kept a net profit of just under $90k. That’s a premium capture rate (PCR) of 74.2%. The 1DTE puts had a 94% PCR. I had two small losses in the 1DTE category, where I liquidated the overnight puts at a modest loss (both were false alarms), but still, the $55k+ was the largest contributor, as expected. I would also occasionally sell 1DTE calls, but only for the AM close on the third Friday of the month. They only made me $130.63 in 2025. But they had a 100% PCR, yay! Of course, there was more “action” in the 0DTE arena. My 0DTE puts and calls had PCRs of 62.2% and 53.1%, respectively. I’d be happy with 50%, so I hit my target in those two buckets. And that’s with the crazy intra-day volatility in April 2025, which I hope will not repeat this year.
The same chart type as last year: here’s the time series of daily premium collection (black = gross, green = net, red = losses). April saw a lot of premium collected, but also all of it going out the window in losses again, more on that below. But apart from that one month during the Tariff Tantrum, 2025 was a very lucrative year with only very occasional small-needle-prick losses. In fact, I made almost two-thirds of my profits in the second half.
Longer-dated puts income
I aim to generate about $1,000 in additional monthly gross revenue from selling longer-dated puts, usually around 90 days out, though actual sales have ranged from 30 to 180 days in practice. I plot the cumulative returns in the chart below. The total profit was just under $14k, so a nice $2,000 above target. On a monthly frequency, the strategy performed well: there was no calendar month with a loss. But the monthly frequency hides the wild ride during the April tariff mess. Ironically, the longer-dated puts had their best month in April, but that was only after a steep temporary loss on April 8. The Long-DTEs lost almost $13k in early April but then rallied by $14,500 between April 14 and April 30. For example, the June 2025 puts with a 2200 strike were worth almost $9.00 on April 8, before eventually expiring worthless. It’s deja vu: it feels like August 5, 2024, again!
0DTE Loss Case Studies
I had 8 days with 0DTE put losses and 6 days with 0DTE call losses (compared to 10 each in 2024). What can we say about what it takes to trigger an intraday loss? Is there a magic cutoff? I often hear critics object that all it takes is a 1% drop intraday and the strategy blows up. In the chart below, I plot the S&P 500 intraday high and low as a % move relative to the market open, i.e., when I normally write my 0DTE puts and calls. With red and green vertical lines, I mark the days when I suffered 0DTE put and call losses, respectively. Note that the open-to-high move on April 9 was +10.39%, but I capped the scale at +6% for better visibility.
A few observations: There is no fixed intra-day move that will trigger a loss. Sure, the big move of +10.39% on April 9 triggered my stop loss orders, and I’m glad they did, because the SPX would have ended up 31.90 points in the money that day, whew! But there were numerous other large intraday moves in which my stops didn’t trigger. Likewise, on the put side, the mini flash crashes in October and November, each with about an intra-day 3% loss, triggered my stops; no surprise here. But astonishingly, on April 4, with a 4.2% drawdown from the open, I made my full premium. Whether or not you suffer a loss depends on a lot of factors:
- The volatility environment: If the VIX is high at inception, you will likely sell so far out of the money that even a relatively large move will not threaten your 0DTEs. See April 4, which happened after the massive April 3 drop and a very large implied volatility spike. But you can also get stopped after a long lull in June and early July, where it took only a sub-1% intra-day drop to trigger a stop, when my OTM-% on that put was a bit too tight.
- The timing of the intra-day move: If the market moves against me right out of the gate in the first hour of trading, it doesn’t take a large move to knock out the STPs. In contrast, I’ve seen plenty of 2%+ drops late in the day that posed no risk to my 0DTE puts if I sold another 2-3% out of the money.
- The implied volatility spike: A gradual move toward the strike is less dangerous. Sure, you get the Delta and Gamma effect, but if implied volatility stays close to where it was at inception, you may escape unscathed. In contrast, if implied volatility spikes as badly as it did on October 10, 2025, your STPs will trigger, thanks to the options’ Vega.
Summary
The strategy generated an extra $103,700, only about $500 less than last year. Sigh, with just one fewer Stop-Loss false alarm in April, I could have gotten myself a pay raise. But that’s OK. Better luck in 2026! I’m glad that all risk models worked as planned.
Options Trading Stats
0DTE and 1DTE contracts
I can provide the same charts with the 0DTE and 1DTE stats as in prior years again. In the first chart, I plot the premium (left) and the option Delta at inception (right). As always, the four panels are for 1) all options, 2) only 1DTE puts, 3) only 0DTE puts, and 4) only 0DTE calls.
- The overnight puts had an average premium of 17.1 cents. Of course, the premium distribution is wildly skewed to the right, with some outliers as large as $3.30. The Delta was 0.0032 on average. (-0.0032 to be precise)
- The same-day puts were mostly 10 cents. The Delta was -0.0039 on average.
- The same-day calls were also mostly 10 cents. The Delta was significantly higher, averaging about 0.008.
The next chart is a histogram with the out-of-the-money percent and the implied volatility at inception:
- The overnight puts had strikes that were 7.2% out of the money on average. The most aggressive strikes were at about 3%, but that’s only on unusually calm days and the night before the third Friday of the month, when I sell the puts expiring at the market open. The implied volatility was 44.2% on average, but some puts had IVs as high as 145%. That was obviously during April and the Trump Tariff Tantrum.
- The 0DTE puts were 3.9% out of the money on average. The IV was in the 30s.
- The 0DTE calls were much tighter, with an average of only about 1.9% out of the money. If you’re wondering why the minimum OTM was 0% (rounded), it’s because I occasionally place market orders to sell short calls just a minute or even a few seconds before the close, at a few points above the current SPX index. Hence, the small OTM reading. The IV is also much smaller for the calls, but that’s as expected due to the negative skewness in equity returns. So, the upside insurance doesn’t pay as much!
Finally, here’s a barchart on when I traded my contracts and the ratio of the contract IV over the then-VIX at inception:
- I trade the 1DTEs at the close and the 0DTEs at the open. To drill down a bit more: I already sell some of the new 1DTE puts before the close, usually in the last hour of trading (noon to 1:00 PM in the Pacific Time Zone). I would trade 1DTEs only very occasionally before noon. And, no surprise here, the 0DTE trading is mostly during the first 15 minutes, maybe 30 minutes of the trading day.
- As a rule of thumb, I try to sell the 1DTE puts at an IV of about 2x the current VIX. 0DTE puts at 1.5x and 0DTE calls at 1.0x, or even slightly below. That’s because upside volatility is always significantly smaller than overall volatility. Except on April 9, 2025.
Longer-dated put stats
And finally, I also created some of the same stats for the longer-dated puts:
- The premium was just about 93 cents on average. But I sometimes go as low as 50 cents. The maximum was over $2.00. (side note: how can there be a $2.07 option quote? Simple, I sold a spread. The spread satisfied the 0.05 tick size, but then IB reports the underlying options prices with a 0.01 precision, i.e., short option at $2.07, long option at $0.32 for a net of $1.75.)
- I target around 70% out-of-the money, on average.
- About 3.5 months to expiration.
- The Delta is tiny, only around 0.001. But make no mistake: a large enough equity drop can cause some painful (temporary) losses, as happened in April. The other option Greeks, gamma, and vega, are to blame. (and, yes, I know vega is not a Greek letter, but the options geeks don’t care!)
- Implied Volatility (IV) is in the high double digits, most of the time between 70 and 90.
- The IV is normally several times higher than the prevailing VIX at the time of the origination.
I traded the long-DTEs tactically, typically when the S&P was in a drawdown, and the VIX was elevated. I want to illustrate this approach with the chart below. In the chart below, I plot the S&P 500 and the VIX index and mark the days with the long-DTE trades in red. I normally sell long-DTE puts when the S&P is down, even though it is very challenging to do so in real time. For example, I moved a bit too early in February and March. In hindsight, it would have been far better to wait for the lows in April. Still, I can proudly proclaim that I sold a nice tranche of puts at the absolute bottom on April 8, with a strike of 1400 and expirations in July and August 2025. A side effect of that tactical trading approach is that you’d occasionally go extended periods without trading, e.g., about 1.5 months during the summer.
Options Trading Strategy Changes
The most significant change has been the replacement of stop-loss orders with stop-limit orders. This is in response to the events in October, when other traders tried to close their short positions but got gnarly fills when they used market orders, as a Stop-Loss is designed to do. That isn’t too surprising: during a flash-crash, when liquidity dries up, you might get fills at outrageous prices, i.e., wherever someone is willing to place a limit order. Here are a few rules I always followed, even when using the plain stop-loss method between 2022 and 2025 to reduce the risk of bad STP fills:
- Get out early! If the STP is too high, you run the risk of triggering your STP when the market has already completely unraveled, and liquidity disappears. I am not going to reveal my exact STP parameters because I don’t want others to imitate me (or front-run me). But you get the idea! Use good judgment when selecting STPs! Sure, you will have countless false alarms, but it’s better to have an occasional loss that wipes out 2-3 days of trading income than one large catastrophic loss that wipes out months or even years of income.
- Pick “prominent” strikes, i.e., ending in 00, 25, 50, and 75. If not possible, at least pick strikes that end in a 0. If possible, stay away from strikes that end in 05, 15, 35, 45, 55, 65, 85, 95. In a flash-crash event, there might be very little liquidity at these oddball strikes, especially on the put side. I have to laugh at people who think they are so smart for selling a put, not with the 6450 strike, but with the 6445 strike. “Look at me, I improved my trade by selling 5 extra points out-of-the money. I am so smart!” That may be a good policy if you’re committed to always holding the position to expiration (which I did for many years until about 2022). But with enough leverage, you can’t. And in the big scheme, it doesn’t matter if you sell a put 380 or 385 or 390 points out of the money. In a bad enough flash crash, they will all trigger their stop-loss orders. And conditional on that, you’re better off with the more liquid strikes!
In any case, the STP-LMT order replaces the market order with a limit order. This solves one problem: the headache of unlimited losses when panic-buying back your short options. But it raises another: where do I set the limit price? If you set LMT=STP, you run the risk that a fast enough market move just jumps over your limit and you miss the boat. So, I recommend setting the LMT at least 1 tick above the STP, better 2 or 3 ticks.
Update, 1/30/2025, 11:00 AM: Here’s a screenshot from October 22 showing some crazy fills; please see below. My 0DTE puts that day had strikes at 6425 and 6450, and did not trigger a Stop.
A second change, as mentioned above: I replaced the longer-term put spreads with just plain naked short puts. Previously, I would mostly sell credit spreads, e.g., sell a 2000-strike put and buy back a 1000-strike put with the same expiration. That spread isn’t really necessary if you sell the puts that far out of the money. The naked puts offer a higher net premium and are still quite margin-efficient.
How did the overall portfolio perform?
The underlying portfolio at Interactive Brokers comprises the bulk of my taxable investments, about 38% of my investable assets. I also have various tax-deferred accounts, including 401(k) plans, IRAs, Roth IRAs, and a Health Savings Account (52%). I also hold (illiquid) real estate investments in private equity funds focusing on multi-family properties (10%). We also have a primary residence, which I consider a great investment, though I don’t include it in my “investment assets.”
In the table below, I display the return stats for a few market indexes, Intermediate (10-year) Treasury bonds, and the S&P 500 in columns 1 and 2. Then two benchmarks: a 40% Stocks, 30% Bonds, and 30% Cash portfolio, which is the benchmark for my Interactive Brokers account. In column 5 in red, the options trading portion only. Then, the IB account without options in column 6 (SPY stands for Short-Put Yield, the name of my strategy and investment advisory business), and the IB account with options in column 7. The overall portfolio without options in column 8 and with the options income in the final column 9. I calculate performance over the last 1Y, 3Y, and 5Y, and all the way back to 2018, when I retired and started trading the IB with a significant size. Notice that I color-code the columns: the realized IB portfolio columns are in beige, matching the 40/30/30 benchmark, and the overall portfolio columns are in blue, matching the 70/15/15 benchmark.
A few observations:
- The options trading has done phenomenally well: I achieved an Information Ratio (IR) of 9.05 over the last year and 10.79 over the last 3 years. Zero drawdowns at the monthly frequency. My last monthly loss with the options strategy was in June 2022!
- The Options IR is still quite impressive over the 5-year and 8-year windows, but the realized volatility was much higher, while the realized returns were only about 2x before 2022. This will always drag down the IR over the longer horizon window.
- The IB portfolio, excluding options, had a very disappointing year in 2025. Preferred shares and Municipal Closed-End Funds had underwhelming performance. Then again, over the 3Y-window, I did beat the benchmark: 12.38% vs. 11.45%.
- The aim of my options strategy is to allow me to employ a slightly derisked portfolio in retirement, i.e., only about a 70-75% equity portion to avoid the terrible Sequence Risk headaches of a 100% equity portfolio (see my Safe Withdrawal Rate research), but then claw back some of the lost return potential with the options. Over the longer horizons, that certainly worked. Since retiring in 2018, the S&P has returned 14.33%, and I’ve achieved an annualized return of 13.99%, all with only about three-quarters of the volatility of a 100% equities portfolio.
Podcast Appearance
I talked more about the strategy on the Theta Profits podcast. It’s also available on YouTube. As always, it’s hard to explain the strategy in great detail because you have to start on square one every time, so I talked only about the very basic parameters. Quite intriguing: Every second comment in the YouTube video lamented that my 4.5% options return wasn’t worth it because folks noted that they could get 4.5% in a money market account at the time. Well, readers of my blog know that options income is on margin, so it’s in addition to any portfolio income, like equity capital gains and dividends, as well as bond interest. I was surprised how many folks interested in options trading would not understand what margin trading is. I explicitly mentioned at the 16:33 mark that options income is alpha on top of my portfolio, but some folks are immune to the facts. So, be vigilant out there: many so-called internet experts don’t know what they are talking about. My favorite podcast appearance about options trading is still the one on Two Sides of Fire back in 2024.
News from the ETF world
People keep asking me whether any ETF replicates what I’m doing. In a nutshell, no. I report stats for a selection of popular ETFs in the table below that employ various options trading strategies. Here’s what I learned:
- Most ETFs have a negative alpha when I regressed their (excess-over-cash-)returns on the (excess-)returns of the S&P 500. This implies that these funds are not useful. Take the popular JEPI fund. The alpha is -0.14%, the beta 59.3%. This means that a portfolio with 59.3% S&P 500 and 40.7% T-bills would have adequately replicated the JEPI fund (R^2 almost 0.8), but with 0.14% additional annual return and lower risk, i.e., 15.5%*0.593, or about 9.2% standard deviation instead of 10.3% risk in the ETF.
- Not a single ETF I’ve studied has a Sharpe Ratio significantly higher than the S&P 500’s. All but one had lower Sharpe Ratios. And even BUFB, with a 0.01 improvement over the S&P 500, is not much to write home about.
- Many other ETFs have the negative alpha issue. The funds with slightly positive alphas are SFLR and BUFB, albeit with very short histories, and thus the alpha estimates are not statistically significant (t-stats are essentially zero). It’s certainly not in the ballpark (not even in the same ZIP code) of my 4%+ alpha generated with my options strategy.
- One fund bucking the trend is SBAR, but it has no significant history. Once this fund has a few market cycles under its belt, I will check back and see if the performance is reliable. If you can generate that 7% alpha year after year, with a 0.186 equity beta, that would be attractive, of course.
In a nutshell, stay away from high-fee ETFs because any potential small alpha is quickly eaten up by expense ratios, often close to 1%. Also, avoid any ETF that trades exotic options, such as buffers. If you need a reliable 4% annual alpha in your taxable account, you’re really stuck with trading options yourself. Nobody presents that to you on a silver platter in an ETF. You could also hire someone else to run the strategy for you, but, aside from yours truly, I don’t know any other adviser who can run it reliably. And I don’t accept new clients at this point.
Conclusions
So, there you have it! Another year under the belt and another six-figure income from a relatively simple and reliable strategy. 0DTE puts and calls trading faced some challenges in April, but, averaged over the entire calendar year, everything looks sound. The lesson learned was that, despite the impressive IR/Sharpe Ratio stats, you never want to scale the strategy too aggressively, so you can sustain a temporary drop like April 2025. I hope you had an equally prosperous year!
How was your options trading experience in 2025? I look forward to your comments and suggestions below!
Please check out the Options Trading Landing Page for other parts of this series.
Title Picture: Anvers Island, Antarctic Peninsula, December 2025.
Thank you ERN, was waiting for this update.
2025 was the first full year of running this strategy for me. Had a 6 month blowout in April due to failing to trigger stop loss limit orders and options that ended in the money, but eventually managed to make a profit of 19,525$ which is 4.01% IRR.
Can see chart here: https://im1mhdfjuog2.s3.us-east-1.amazonaws.com/2025-Options/Cumulative+Profit+%26+Internal+Rate+of+Return+2025.svg
and here: https://im1mhdfjuog2.s3.us-east-1.amazonaws.com/2025-Options/pcr.svg
A few notes:
1. When comparing the risks of using market stop orders vs limit stop orders, I still prefer to use the market stop orders, while trying to mitigate the risk by choosing liquid strikes and exit early as you suggested. With limit, there are just too many reasons why the order will simply not execute and I suffered from one of them personally this year.
2. I liked the ‘0DTE Loss Case Studies’ section in your summary, especially mentioning these 3 main factors that will determine whether your stop will be triggered or not. These are the kind of things you learn only after you get your hands dirty.
3. Your call selling just before market close sounds interesting. Will be happy to hear more about the rationale behind it if you’re willing to share.
4. I played a little with selling small width, 3dte credit spreads (both sides) on the last few months of the year (hence the jumps in the chart). It consumes almost no margin and involves almost no risk, but as such it was barely profitable and in 2026 I stopped trading this.
5. What I like about the 0dte and 1dte strategy is how uncorrelated it is to the market itself. Your long-dated naked puts, on the other hand, are correlated to the market and since I already have high exposure to the market in my accounts, including the one in IB where I trade options, I personally prefer to avoid this kind of trading.
6. You mentioned that you “try to sell the 1DTE puts at an IV of about 2x the current VIX. 0DTE puts at 1.5x and 0DTE calls at 1.0x, or even slightly below”. Doing that will define for you the premiums that you sell right? But then when looking at your 0dte premiums, it seems that you almost always sell at 10$. So is it just a coincidence that the 10$ premiums are almost always the ones satisfying the IV condition that you mentioned? Also are you looking at VIX1D when doing this?
Thanks for sharing!
Strange that your results are the mirror image of mine: My 0DTE calls were the worst, with the 0DTE puts holding up well, especially in April.
1: True. But I never use so much leverage that jumping over the LMT would wipe me out.
3: There is not much to share: I look around for some bargains maybe 5 minutes, sometimes 1 minute before close and roll the dice. Has worked out 99% of the time.
5: True, the 90DTEs are correlated. But a 13k drop was still only about 0.55% of the portfolio. Not much equity risk.
6: I’m just reporting the IV/VIX and it turned out that this is how the multiples came in. I still mostly target the premium target, of course. Mostly 0.10 0DTE.
I had 6 days with stops on the 0dte puts and only 3 days on the 0dte calls.
All the 3 call stops happened in April, so yes somehow the 0dte calls were very nice to me in 2025.
With the 0dte puts the story was different.
In April I was still selling my 0dte before market open, outside of regular trading hours.
Outside RTH, stop orders can only be of type limit stop orders.
The stop didn’t execute correctly, got canceled by the exchange because the limit price was too high above the stop price, and when I saw it, it was too late.
This is where all the 0dte put loss came from, and this is why today I only sell the 0dte during regular trading hours and with market stop orders.
OK, noted. Amazing how everybody’s experience is so different. Good job avoiding the Call losses.
Pierrot, those are very nice charts! How did you make them? Presumably IBKR API with some custom queries and scripting. If it wasn’t a ton of hours of work I might give it a try myself.
Thanks. Actually no queries or programming involved.
I just manually enter all my option trades in a google sheet, and create the charts directly in the sheet.
My favorite article of the year! I had very similar results to yours. Thanks for everything Karsten – The reason I am retired now is because of you and your willingness to share this strategy.
Thanks, Karl! Let’s plan for many more prosperous years like that.
Great Article. Are you planning changes to the underlying portfolio?
I’ve shifted out of preferred and into Muni Closed end funds to ride the interest rate down move. But not much else has changed.
Thank you for the write-up and congrats on another great year!
“This is in response to the events in October, when other traders tried to close their short positions but got gnarly fills when they used market orders, as a Stop-Loss is designed to do”
Can you go into more detail on how much slippage you saw? I got stopped out on this day and i had essentially no slippage ($2.50 price, $2.60 fill)
I saw no slippage. Just like you. But there I heard some folks got hosed, i.e., $5.00 STP and a fill at more then $30.00.
I didn’t check on 10/10 and 10/14, but I took a screenshot of IB options quotes on 10/22, posted above in the main text. There were some crazy fills for sure.
It depended on what instrument you were trading and how close to the money you were. I sold SPX and NQ that day. I will never trade NQ again! I also learned not to use up my remaining margin too early in the trading day like I did on 10/10/25.
Going in I had 1 dte 4% otm SPX put sold for .50 with a stp mkt of 5.00, filled for 5.10
AH market was up so in premarket I sold another SPX put 2.5% otm for .25, with a stp mkt of 2.50, filled for 2.60
And then I got greedy. I decided to sell a 1.5% otm NQ put for 1.15($23), with a stp mkt at 11.50($230) at 0748 PST. 10 minutes later I watched the option chain completely blow out on NQ with 100 wide spreads. It was not a great feeling to say the least. My strike was rapidly heading for itm, but my stp mkt filled at 78.75 ($1575). I believe the order still saved me money when all was said and done.
Wow, that’s painful. NQ has a lot less liquidity. I never touched that one.
Thanks! Always very interesting. And a nice time to be in South America. We spent New Years in Punta del Este a few years back.
I noticed recently that Simplify funds now has three funds in this area. In addition to SBAR, they recently rolled out XV and XXV, which are supposedly intended to target 15% and 25% returns. They have made a couple little promo videos on their site.
Thanks! Yeah, that’s a nice place to hang out that time of the year.
They have short history, so it’s too early to tell if they are fetching 15 or even 25%. But the XV definably looks promising: It had 7% alpha plus only 28% equity beta over 8 months in 2025. It’s on my watchlist!
Thanks Karsten! I always look forward to annual options review
A question for the long dated puts id you don’t mind:
– Are you setting stops for these puts or relying on the very high probability they expire worthless? Your chart shows losses in April but if you were selling 70% out of the money, I wouldn’t expect a realized loss. Is the plot just real time value of the positions you have open or were you stopped out?
-Are you holding these positions to expiry?
Thanks!
For the longer-dated puts I don’t set stops. Some of the puts looked a bit scary in April 2025, but I knew that the market drop was overdone, so I decided to sit it out. But admittedly, at $10.00 it makes you wonder if this was a good idea to keep the short puts, haha. But it all turned out well.
Hi Karsten,
You wrote: “But make no mistake: a large enough equity drop can cause some painful (temporary) losses, as happened in April.”
Just to clarify – you mean these are only unrealized (“on paper”) losses and not realized losses, correct?
Also, I assume you hold the positions until expiration. Have you considered using a profit‑taking order to exit when the option price drops by, say, 50%?
The longer-dated puts had only temporary losses, “on paper,” as you correctly state. I held everything to expiration and made the full premium.
I am executing the strategy you describe – selling long-dated, low-delta SPX puts – using a Portfolio Margin account.
To make this concrete, here is a numeric example:
Portfolio: $250k
Daily Activity: I sell 2 zero DTE Puts and 2 zero DTE Calls. This currently consumes ~$140k in margin. (I use stop losses on these).
The “Add-On”: I am considering adding a short 2000 Strike Put (130 DTE). Currently, this adds only ~$2k to my margin.
My fear – and please correct me if my understanding here is wrong – is that the low margin on the long-dated put is deceptive. I am worried that in a crash, the margin on that single long-dated put will expand violently (due to IV spikes/TIMS) and, combined with the heavy margin load from the 0DTEs, instantly liquidate me despite the stop losses.
My Question: How safe is it to layer that long-dated put on top of an already margin-intensive strategy? Do you have a rule for how much ‘buffer’ I need to leave empty to accommodate that expansion risk?
Please note: The numbers above are just a theoretical example to illustrate the margin dynamics I am trying to understand.
It’s a valid concern: The current 2000 strike puts don’t take much margin. But if we have a repeat of April 2025, they will demand more. If I remember correctly, the margin requirements expanded to about 8-10x the amount at the inception after a fast enough drop. But of course, not all at once. You may still have time to reduce the 1DTE puts. I never came close to hitting any margin calls last year.
Which cruise line did you use?
Princess Cruises. Very affordable, and the service is good. Comparable to Royal Caribbean.
Wonderful information as usual , I’m sure many of us with you had your own ETF! Out of curiosity, do you track how many hours a day/year you spend implementing this?
Thanks!
I don’t track the time. The minimum time commitment is 10 minutes each at the close and open. But I like to keep trading screen open while working on other stuff. It’s entertainment for me. Not work.
Wow, what a coincidence, we visited Antarctica this past December too! On one of the smaller ships from Ushuaia. Trip of a lifetime. Thanks for continuing to do these annual recaps! Love all the details.
I’m having a hard time understanding your Return Stats table in comparison to the ETFs. Your table has Sharpe Ratio / IR – that’s Sharpe ratio divided by IR right? (since they are two different things). But then you say you “achieved an Information Ratio (IR) of 9.05” – which matches the Sharpe/IR value.
Then in the ETFs you have their alpha and Sharpe Ratios but I’m not sure how to compare this to your numbers. Lastly, it seems like only “IB-all” is relevant for comparison to the ETFs as an apples-to-apples comparison right? (Since that’s what they’re doing too, so we have to compare whole portfolio to whole portfolio).
Nice! We saw the expedition cruise ships in Ushuaia. Very nice! We were on the Sapphire Princess.
Sharpe is (return-risk-free)/risk
IR is AlphaReturn/risk. IR is normally used for alpha strategies (so no need to subtract a risk-free) or (Strategy return – Benchmark Return)/Tracking Error.
I’d compare the ETF Sharpe with the SPX Sharpe during that same window. None improve the Sharpe much (only one by 0.01)
In contrast, I increase my Sharpe with the IB-SPY significantly when compared to the without IB-SPY
Hmm … several of us were there. We were on the Greg Mortimer.
Nice! That’s a nice expedition cruise operator!
Hi BigERN,
Excellent post – ty!
I found out that parts of your put option strategy have been brought to an ETF to comply with european regulation (UCITS).
ISIN: IE00BLDGHT92
I cite: “The Euro Equity Defensive Put Write index tracks the performance of a put option writing strategy which consists of selling EURO STOXX 50 put options and a cash exposure linked to a three-month German Bubil rate. Strike Price = 97 %”
What do you think about that?
Greetings,
Mark
Thanks! I can’t confirm that this is my strategy. It says nothing about the days to expiration. Also it misses the call selling.
Thanks for checking. I formulated my initial post imprecise.
It’s similar to WisdomTree’s PUTW linked on your landing page. From my point of view, only the underlying (Euro Stoxx 50 vs S&P 500) and strike price differs (97 vs. 97,5 %).
You might want to include the ETF on your landing page for fellow Europeans?
Ah, that makes more sense! Fair enough, I included the reference to that EU fund.
Very nice write-up Karsten!
I need to dip a toe into this strategy as well. Some questions:
1) As I understand it, you are paying no margin interest on your 0DTE or 1DTE positions because they are in effect for less time than the minimum that your broker charges margin for? What about the longer-dated short options? Did you collateralize these with cash, or just subtract the cost of margin from your reported returns?
2) I use costless collars with >1 year to expiration to give my >90% equities porfolio the volatility profile of a 60/40 portfolio (e.g. a net delta of 0.45 to 0.5), and the downside protection of a 15/85 portfolio. Your observation that people overpay for both protection (puts) and greed (calls) makes me wonder if I should be tilting my collars to sell more in calls than I buy in puts. I could parlay the proceeds into leveraging my portfolio, which would make up for having a lower upside than downside. But your observation applies to 0DTE and 1DTE contracts, not >1 year contracts! Do you see any evidence that the effect exists for longer-term options?
3) For your stop orders, do you use a conditional order like “if the index falls 1%, buy to close at this price” or do you tie the order to the option’s price like “if the option increases in price by 150%, buy to close at this price”? Seems like the latter would be dangerous in an illiquid environment.
4) In an earlier article, you demonstrated the “wheel” trading strategy doesn’t work. Would it work if 0DTE or 1DTE options were used as you use them? If not, would that be because of next-day bounce back effects?
Thanks!
1: There is no margin interest. That’s because my cash balance is always positive.
2: For very long-dated puts and calls and close to at-the-money, the premium is not that unrealistic. Maybe your strategy is not bleeding much money.
3: STP-LMT means you submit two prices: STP and LMT. If and only if the price hits or crosses STP, then you submit a limit order at LMT.
4: The wheel strategy is universally useless. It’s even more useless and dangerous in my context where I sell with significant margin.
Just wanted to lead with a thanks for the write up as always, greatly enjoy your effort in sharing. I personally enjoy the strategy with slight modifications and in all my trading experience, always revert back to this simple income strategy. To me, it is the best balance of time, effort, risk/stress, and of course, reward.
I am curious what everyone is paying for commissions here. Currently on IBKR Pro I pay 1.55 per SPX trade and occasionally 1.62. This is a pretty substantial over hundreds and thousands of trades of course, do I have something wrong?
I do enjoy using the IBKR algo limit orders for fills though, and I feel for the time it saves me placing orders and getting favorable (to me) fills, it makes paying 1.55 OK. Without the algo, I have to do a lot of waiting, modifying, fishing, cancelling, and reordering to get a good fill. On the algo, I find my strike, set the limit to my floor, and more often than not, get filled at ask or at least my floor target premium. It is especially helpful during the final minutes of trading.
Thanks!
For a single short put or call 1.55 at IB. For larger size orders it’s 1.20 per contract.
Based purely off your metrics , it is clear the 1dte has the highest pcr and largest absolute dollar return. Curious why you don’t scale that up ?
The dreaded IB exposure fee and the concern that crazy some overnight event messes up that party.
That’s fair. I’m running a modified version of your strategy where I add a long leg for defined risk. Have you considered that as it would mitigate both issues above
Yes, I have considered that. I would occasionally buy back a far OTM 0.05 put for managing margin. But since I often sell at only 10-15 cents, it doesn’t make sense to buy back the tail.
Hi Big ERN!
First time/long time. I’ve been running a version of your strategy since 2024, and it allowed me to “retire” in 2025, much earlier than I thought possible; so thank you for quite literally changing my life!
I’m based in Canada so there are quite a few limitations compared to the US (no portfolio margin/ tax advantage), but its still possible to run the strategy north of the border! I’ve had to run a somewhat more aggressive form of the strategy to make it work with my modest portfolio, but I managed a 7% return last year with relatively few stress days.
I do have a question, but it has to do with your CAPE ratio:
I’ve been paying attention to the movement of your CAPE.2 value in the SWR Toolbox, and sometimes it updates daily, but other times it doesn’t update for days or weeks at a time. What determines when the value is updated (is it done manually?), and is there a tutorial for how to derive the number for myself?
The reason I need it is because I track my portfolio value daily (obsessive I know, but I’m retired!), and use the CAPE.2 value to calculate my SWR and the corresponding dollar value. I then take the minimum value in a given month to determine my monthly budget for the next month. This monthly budget is then covered by my options income, with any excess invested back into the portfolio.
Thanks for that info! I’m glad that even in a more regulated environment you can make this work.
About CAPE: My travel schedule determines the update schedule.
If I’m not available to update you can just scale the CAPE using my last estimate and last CAPE and the most recent SPX index reading.
Still traveling…..???
Thanks for checking. Back in business. I wasn’t traveling but had a ton of other things to handle. 🙂
Hi Ern,
Thanks for sharing this series — I’m new to your blog and have recently started testing this strategy after trying a few option-selling approaches over the last couple of years with mixed results.
I have a few questions:
1.) You mention doing roughly 18–22 puts per day (1DTE + 0DTE) and 20–24 calls (0DTE). Approximately what percentage of your total margin capacity is this? Do you effectively max out when adding the 0DTE positions, or do you intentionally retain margin buffer?
2.) With that mix of 1DTE and 0DTE puts, do you typically incur an IBKR exposure fee? I’ve found the fee negligible up to ~50% of max 1DTE capacity, which makes me wonder whether your 2:1 ratio implies some exposure fee or unused margin (after adding the 0DTEs).
3.) On stop-limit orders: the 2–3 tick gap between STP and LMT seems quite narrow. I’ve been using a wider gap (roughly 2:1 LMT/STP) to give more room for a fill. IBKR warns about using its price-management algo but otherwise allows the stop to go through. Do you have any comment on this?
4.) Finally, is there a particular reason you avoid 1DTE calls?
Thanks a lot,
Newboy
Regarding #3, keep in mind that outside RTH – if the gap is too wide, after you hit the stop, IBKR still won’t fill your order until the market price is close enough to the limit.
I don’t know how much is “too wide” and “close enough”, personally I use 15-20%.
1: Yes, when adding the 0DTEs, I’m usually at the max or close.
2: I don’t usually incur the IB exposure fee. But sometimes it still hits me if I go overboard or I don’t sell that far OTM. But it’s often just between a dollar or two.
3: You can use a wider gap, especially if the STP is higher, sure.
4: Too little premium, too much risk. I might as well wait until the open and sell at almost the same OTM-%.
I thought this blog was about retirement but selling and hedging 0/1 DTE options is a full time job. Caution for anyone trying to replicate this as this is extremely risky for most.
It doesn’t need to be a full-time job, as I’ve outlined numerous times.
I’ve been following your articles for a few years and have fantasized about doing this sort of thing as a “daily grind.” However, my only experience with options is ocassionally buying an OTM put on SPY when it gets frothy, and a VIX call when it’s been “sedate” in the low teens for a while. Assuming I’m “kindergarten level” can you kindly direct me to some suggested reading to get at least competent enough to get my hands dirty?
Thank you in advance, and thank you for all the work you do here.
The reading for my kind of trading is my blog. I can’t think of any other sources. There is a lot of options slop on Youtube where you can learn useless stuff like the wheel strategy, etc.
Get your hands dirty with a paper trading account and run that for a year. You’ll learn more there.
I started running this a few months into the year + skipped the VIX 50 week (and thus the call stops).
0DTE calls: 100% PCR
1DTE puts: 93.8% PCR
0DTE puts: 71.5% PCR
Total: 90.1% PCR.
the call income dominated, just over 49% of the profit.
I really want to thank you for posting about this – before reading your posts I had no idea about options or how valuable margin was. I think it yielded an extra 5% on my taxable portfolio!
Looking forward to a full year with a bit larger account so it’s more efficient.
Nice, congrats! But be careful not to get too cocky. Don’t scale this up too much after you got the lucky timing where you missed the crazy April.
Yeah I looked at .50c 0DTE contracts instead of .10c, they would have done about 10% last year, but have less good years as well. I think I’m slightly more aggressive than you on the 1DTE put pricing, scaling a little bit faster when the pricing is better. I do see the true risk mitigation of the lower stop loses you run, with no good idea of how I would have faired in the two events that week in April, but the PCR otherwise is just so much better. Not maxing out the margin would seem like a mistake, especially relative to everything else.
It’s quite a wonderful topic! I think long term that you are correct, identifying the amount you need to make your plan work then minimizing the risk to make that happen. You are a great example of that!
Thanks for sharing! We’re definitely on the same wavelength.
Hello Mr. Jeske,
now that you are using longer-term options (around 100 days), has the leverage you previously suggested of 3x changed?
Thank you very much for your help.
The 100DTE take very little margin. So, there’s no need to reduce the 1DTE much.
Thanks Karsten! This update is always the best way to start the new year!
Quick question on your comment “ it’s better to have an occasional loss that wipes out 2-3 days of trading income than one large catastrophic loss”. Your previous recommendation is two to three months premium for the STP. Would 2-3 days income be too conservative that would happen so frequently and eat into the profit substantially? Thanks!
I don’t set 2-3 months for the STP. I might have occasionally had 2-3M of income lost very early (before I used STPs) when the puts expired in the money (I believe August 2011 and August 2015). But not recently.
It seems more of art than science of setting the STP level to maximize the potential returns. Based on my limited experience (about two years of selling SPX put), all the triggered STPs are false alarm. Meaning if I don’t have STP I would have made more money. I sell 1DTE or 0DTE put with quite big OTM percentage.
I probably will still set the STP just to be able to sleep better. Based on your option trading experience, have you had STP that actually saved you from substantial money loss? You might had more extreme cases.
Yes, I’ve noticed that there are long drought periods where all STPs were false alarms. Until a large enough event hits (April 2025) and I made it all back. So, be patient! 🙂
It seems more art than science in terms of setting up the STP level to maximize the potential returns. Based on my limited experience, all my triggered STP are false alarm, meaning if I don’t have STP, I would have made more money.
I will still set STP just to be able to sleep better. Based on your option trading experience, have you had STP that actually saved your substantial loss? Thanks!
Yes: April 9, 2025 on the call side.
Dr. J:
Love your blogs!
We did a Antarctica cruise on the MS Seaventure, a small expedition ship. Kayaking twice a day amid icebergs, penguins, whales, and seals.
Plus lots of landings, and one night of camping out on the ice.
It was intense, exhilarating, and amazing. 5 m seas in the Drake passage.+- 0.4 g heaving with some waves crashing over the bow.
In Uruguay Punte de Este We took a bumpy boat out to an island full of thousands of seals. We jumped in the water and swam with the playful cavorting seals. It was hilarious!
For a couple weeks I didn’t really pay much attention to the market.
Nice! That was a much more rugged adventure than ours. We will do your version eventually when our daughter is off to college.
I did pay attention to the market while in Antarctica. The time was ideal: the two trading windows were in the late morning and in the afternoon before dinner. WiFi worked most of the time. My friend traded for me when I was out of range.
First of all, thank you so much for this series (AND the SWR series and ALL other posts…. Your website is invaluable to the FIRE community). I have read your Options posts numerous times and paper traded the strategy for a while now, February 2026 I finally started implementing it.
I have one quick question: I’m sure I’m missing something, but your PCR on the overnight puts is higher than your PCR on the same day puts, and the premium looks to be higher. Have you considered going back to doing all 1DTE puts and dropping the 0DTE puts (I think this is what you did in previous years?). What’s the reasoning to keep the 0DTE puts if they don’t perform as well or have a higher premium?
The IB exposure fee. And the (unlikely) black swan event overnight.
Karsten, would you mind sharing if you just go with the current Bid on non-odd strikes or do you try to get a better fills?
Example: You’re targeting a 0.15 premium at around a 6500 strike price. 6505 is at 0.15/0.20 bid/ask, but 6500 is at 0.10/0.15
Would you go up to 6525 and take an immediate fill at 0.15, or would you place a 6500 order and try to get it to fill at 0.15?
Thanks!
Depends. I try to split the 2-tick wide B/A spread if there are any between the highest 0.15 ask and the lowest 0.15 bid.
Good day BigERN
I followed your options posts since Part 1 and noticed you’ve been progressively lowering your ‘target delta’ over the years – from 0.05 to 0.0032 now
I dipped my toes with the 1DTE put strategy with a 0.05 delta target. Good results since Nov 2025 but would not call myself battle-tested
Will a 0.05 delta target still work in the long run or do you recommend I go lower
Seeing the previous posts from ERN, it appears that he was trading fewer contracts when targeting higher premiums, and the capture rate was lower, around 40%. Going with higher strikes could allow you to trade fewer contracts and avoid the IBKR exposure fee, but personally I would budget for losses when the trade goes against you if targeting a 0.05 delta.
Going with a lower premium gives a smoother profit curve and may yield similar profits at the end of the year than if you were targeting a 0.05 delta. But if the trade really goes wrong, you’ll be more exposed if you have more contracts but less premium.
Good answer!
The higher the Delta, the more competition you have from institutional money. Right now, 0.05 Delta is about 100 pts OTM, but with a premium of $1.50. Not bad. But I wouldn’t use any leverage in that range.
got it. one way to put it is to keep the “delta notional” constant (i.e. delta x notional x no. of contracts)
Yes! That’s a good way to look at it.
I did some paper trades using following your 2xVIX 1DTE Put strategy. I found that at this distance OTM, the bid/ask prices get blocky — there are a bunch of Bid=$0.10/Ask=$0.15 in a row. In this case, it makes the most sense to choose the furthest OTM put at a given price. Or am I missing something? How does this interact with your practice of choosing round number strike prices? Would you choose an option that is less OTM to get a round strike price even if a further OTM option has the same premium?
There is no 2VIX strategy. I simply report the stats that happen to be about IV=2VIX.
For the strike selection you need to keep in mind the “round strike” for liquidity and where you can get fills, i.e., where you might be able to get a fill by splitting the B/A, i.e., find the strike that has a B=.10, A=0.20 and you put in a limit order at 0.15.
Karsten, here’s something for you to test in your SWR series and give your opinion. My smooth SWR formula. You can call it the Andy’s Formula lol:
W(t) = 0.70 * W(t-1) + 0.30 * ( x * P(t) )
where:
W(t) = withdrawal this year
W(t-1) = withdrawal last year
P(t) = portfolio value this year
x = 4%
I have no preconception so feel free to destroy it if you think it won’t work or if you think x should be another value.
Nice, but I if know the man, he’s a CAPE lover. Something like would make his day instead:
𝑊(𝑡)=(1−𝛼)𝑊(𝑡−1)+𝛼(𝑥(𝑡)𝑃(𝑡))W(t)
Where:
𝑥(𝑡)= CAPE-adjusted safe rate (3.0–3.75%)
α = 0.4–0.6
Possibly asymmetric (faster cuts than raises)
That would feel very ERN.
I think the CAPE-based rule is perfect as it is. It slows down the spending increases/cuts after the portfolio increases/decreases, just perfectly. So, I wouldn’t overthink this and just stick with the CAPE. The autoregressive rule suggested by Andy mimics some features, but nor perfectly.
Nice idea. Endowments are using rules similar to this. It will have withdrawal amounts not too different from a CAPE-based rule, but I’d rather take the CAPE into consideration directly.
Excellent article as always. I’ve been running a strategy inspired by your series, selling low delta SPX puts since October and the results have been good, although it does hinge hugely on whether or not you manage to avoid the worst days.
Couple questions about your strategy and some of the changes you’ve made:
1) You’ve moved from ~5 delta to ~0.3 delta. Did you change your sizing at all? As the premium is much lower, do you put on more contracts for the same portfolio size? Curious how many 1DTE 0.3 delta SPX contracts you’d be comfortable selling with say a $500k portfolio?
2) You continue using stop loses. How do you think about setting these? Is it at multiples of expected daily profit, to limit loss to x days of trading? Have you done any backtesting on these? Whenever I’ve tried backtesting put selling strategies with a stop loss, they’d underperform just holding to expiration, due to the large number of days that have wild price swings, only to expire worthless. Curious if that’s any difference in the ultra low delta options you’re selling more recently.
1: for $500k, I’d run about 3 overnight puts.
2: I don’t reveal my exact STP-LMT numbers. But you’re right: I’m comfortable losing a few days worth of income on each occasion. If it happens only once a month that’s fine.
And you’re right, holding to expiration is better on average. But can be painful, too. I have not done backtests. There are some providers, like Options Omega, I don’t fully trust their numbers either.
I keep track of my “active” results, i.e., how much did I gain/lose from the STPs vs. holding to expiry. It’s been almost even. The STPs cost me very little money. And in 2025, I benefitted from the STPs: April 9, on the Call side!!!
1) Makes sense, that about matches my sizing at the moment
And appreciate the insight on your stops / results from having them implemented. The price of better returns without stops is indeed more drawdown. And as you say, if you manage to dodge some of the worst days, like April 2025, it massively improves the profitability.
Hi Karsten,
Thank you very much for these option trading updates. I retired 5 years ago, and have heavily used your detailed write-ups as inspiration!
I wanted to get your thoughts on stop orders as the primary source of black swan protection (e.g. against a flash crash). I have a lurking fear that a flash crash could cause IBKR to also have an outage or data delay if market data spikes as a result of the crash. This risk seems even higher with stop limits, where the price could entirely gap between the stop and the limit thresholds if the delay is large enough. And if I specify that I would like the stops held on CBOE, then I am subject to wide market protection, which could still lead to a failure in execution if the market is moving sufficiently quickly.
This leads me to wonder if the only “true” black swan protection is structural protection through spreads, but as you have noted these have a steep cost that really cut into the profit margins of this strategy. Am I overthinking/over-worrying about this? I have a very high margin per contract ratio as a result of this fear, leading to potentially a lot of under-utilization of my portfolio margin.
Thanks!
For that reason I never write so many puts that a bad enough black swan event wipes out too much of my account. My risk model is still based on holding to expiration, in case the price jumps over my LMT part of the STPLMT order.
Hi Karsten, just a question about variance futures/swaps. VA are a new volatility product recently launched by Cboe and they are designed to trade volatility in a new way (delta-neutral). Have you ever considered to harvest VRP by shorting VA?
I would stay away from that. A large enough vol spike could cause very painful losses, much more so than naked put selling. The problem is that there is no theoretical bound to how high Vol can spike in one day. But we have a pretty good sense on how much the S&P can fall in a day.
Hi Karsten,
Thanks for an excellent summary of your 2025 trading. This was really insightful, even imho even more so than in previous years.
My I ask a technical question: where in TWS can I find the screen you showed in your screenshot of the extreme highs of some options? Thanks a lot.
Thanks!
These are just the screenshots from my IB trading screen watch list that day. You can add the daily high/low columns by hand.
Great review as always Karsten, I look forward to these posts whenever they come around! I had a question: I believe you use portfolio margin in your account. What is the advantage of using a portfolio margin account compared to a regular margin account given you are selling options? When I change my IBKR account to a portfolio margin account, the only change seems to be that I have greater buying power, but since I would be selling options I don’t think the buying power impacts how many I can sell unless I am missing something?
You need Portfolio Margin for this strategy. It’s a more efficient use of your margin. You couldn’t sell as many options and you couldn’t sell as efficiently on both the call and put side with RegT.
Hi Karsten,
I have really enjoyed reading the detailed posts on your SPX options approach. I really admire your willingness to share so much information.
Is it correct to assume that, with the low premium of the 1DTE and 0DTE put options that you sell, you let them expire worthless if possible? If I understand correctly, it looks like you try to almost max out your margin.
If so, when is the margin freed up so that you can sell more 1DTE options? It seems like you could only do this every other day if are maxing out the margin unless you are buying back some options before market close.
Thanks ahead of time for any additional insight that you can provide.
Margin frees at the end of the day, generally from a few seconds to a few minutes after market close. But this may depend on your brokerage. Recommendation is interactive brokers and portfolio margin to do this.
Hi Ben, why is portfolio margin necessary? What is the advantage of using a portfolio margin account compared to a regular margin account given you are selling options? When I change my IBKR account to a portfolio margin account, the only change seems to be that I have greater buying power, but since I would be selling options I don’t think the buying power impacts how many I can sell unless I am missing something?
It allows you to sell calls and puts using the same margin – effectively doubling the amount of premium you sell. It does this by modeling that if your calls were to go into the money that the puts would be worthless, so you can max out both as if you were only selling one or the other.
Thanks Ben. How does it work if your portfolio holds equity index fund/ETF positions? Does the required margin increase? Does it make you more likely to get a margin call/have your options liquidated?
You want to get out of mutual funds if you can, they only give something like 50% margin. From what I know vanguard will allow you to change the fund into the matched ETF without tax consequences. ETFs seem fine. Since you are 1x long and can leverage about 10x, that means you can sell slightly more calls than puts. You run out of buying power before excess liquidity, so I don’t think a margin call is possible unless your stops completly fail and you go into the money. That is just a guess though, I had the same concern as you so spent some time to try and look it up and that’s the best I found.
Yeah I’m more concerned about how margin requirements change if e.g. the underlying equity market declines sharply and I’ve sold a puts on SPX and how to understand what impact that will have on the positions I own. I think Karsten uses a portfolio that includes bonds/prefs, but I’m not sure how to assess/work out the impact if the underlying portfolio is all index ETFs..
The portfolio margin numbers change daily. But from what I can tell it is really just daily. In April we were not able to sell as many options. 0DTE should be fine and 1DTE should also be find as you won’t be leveraged enough that it would be impacted. Not sure if this is your exact question.
It won’t let me reply to your last message so replying to this one instead. I think it’s just trying to get my head around what happens if you are using a 100% equity portfolio and there is a big decline in the equity market, I guess it would just mean my overall portfolio value is lower so I can sell fewer options for the same amount of leverage. What I don’t understand is how to work out how much the market would have to fall before getting a margin call e.g. if you sell a put and have a portfolio value that is (for example) double the required margin (I think Karsten uses closer to 3x), would equities have to half before you get a margin call?
If there were a big decline in the equity market you would be selling the exact same number of options as the ratio is what matters. Karsten’s portfolio has been underperforming the market the last several years so the number he can sell has been declining.
For the margin call I think you can just look at your excess liquidity and calculate more or less what drop will take that to zero and that is when you’ll get liquidated. I think it would be long before your account value went to zero. If you have a 200k account, 50k margin tied up in the option and 150k excess liquidity. Say you are 5% out this weekend, a 20% drop would take out 110k from the option value and 40k from portfolio losses, so you’d be close to getting the option force liquidated, leaving you with a portfolio of 50k, or a bit less if the required maintenance margin also dropped by 20% and you got forced out a few percent further down.
If the market were to fall by 50%, then the margin requirement per put would also be lower. Something to keep in mind!
Thanks for the example. How did you work out the 110k loss from the option value?
you could the number of points under the strike * 100
Yes, I let them expire worthless, if possible.
The margin is freed up within a few seconds after the market close. IB allows that. Other brokers may not, e.g., Schwab, Fidelity, etc.
Indeed, IBKR releases the margin a few seconds after 4pm Eastern time. But Schwab does not release the margin until after CBOE closes, which is exactly the problem that Roger raised. So indeed, the choice of the broker is very important to be able to apply this strategy.
Fidelity also does not release margin until after CBOE closes.
Thanks Karsten!
I noticed the percentage of OTM for 1DTE put has very wide range, 3% to 12%. In what condition you would convince yourself to sell put at 10% OTM instead of selling at 7% OTM with much higher premium? Any parameters that would make you more cautious than normal? Even 7% seems quite safe for 1DTE put. Thanks!
The OTM-ness is determined by the day’s vol regime. If the VIX is below 15%, you don’t sell very far OTM. If the VIX is above 30, you can easily do 10%+ and get a rich premium.
Yes, the risk premium goes up with VIX. It seems the war is very profitable event for option trading. We all should still pray for peace.
Agree. We should all pray for peace, and soon! We can always make more money later.
I am using Robinhood and selling 1 SPX PUT option (at current market price) requires $690,000 collateral. So 10 put options would require $6,900,000, 20 would be $13,800,000.
Is that the same for IB? I feel like you put yourself at risk for margin call?
I don’t have a $13,800,000 portfolio to play with.
How are you handling these margin requirements?
No, 1 put requires much less collateral at IB (only about $72,000). Make sure you use a serious broker, not Robinhood or other toy brokers and you use Portfolio Margin.
I’m following your strategy with about $160,000 invested in high-quality stocks such as Google, MDT, Unilever, etc. I’m using Reg-T margin; in Europe retail clients don’t have access to portfolio margin. Do you think this is sufficient capital to sell one 1-DTE contract every day, or do you think the excess liquidity — around $70,000 — could be wiped out in a sudden market drop?
Not sure it helps to answer you question, but perhaps valueable nonetheless. I am a European retail client and can confirm that portfolio margin is available. At least from Germany when accessing IBKR from its Ireland office. Call/Put selling on SPX is no issue and margin requirements are reasonable. Perhaps you are subject to a different regulation/office, but maybe you can still opt for portfolio margin which feels like a no regret move. Gotta check yourself :-). Did not check the numbers, but feel you should be able to sell one 1DTE contract. For what it is worth, ibkr lets you simulate the “new” excess margin (simulated for post trade) when setting up a trade. Good luck.
Danke/Thanks for confirming. Glad they allow Portfolio Margin for clients in other countries!
$70k cannot be wiped out unless your put goes 700 point in the money. So, this looks pretty safe. I’m operating at around 160-200k per short put.
Thankyou Stefan . I have IBKR Ireland, I tried to make the change and the response was:
‘It is not possible to make that request for clients with the IB-IE identity.’
Perhaps, as a Spanish client, due to regulatory issues I am not allowed to do so — I’m not sure. I sell one contract every night and my margin doesn’t allow for more.”
Thank you for sharing so much information here. I really appreciate the annual updates on your strategy. I’ve been trying this for about 6 months now and have few thoughts on risk mitigation and dealing with black swans.
1) For 1 DTE puts, I go for slightly higher delta and then make it a spread so even if theres an overnight catastrophe, my absolute max loss around 30% of my portfolio. These days I like to be 300 points OTM. Completely naked puts would wipe me out if say the market fell 30% overnight. Of course that hasn’t happened before, but I simply don’t want that kind of life changing risk.
2) For 0 DTE calls/puts, the strikes are much closer to the money so I’ll set a conditional order on IBKR where SPX must pass the strike and then execute a market order to close the position. I found that stops on a multiple of the premium received triggered far too often at 10X or even 20X the premium. A brief slide/jump in SPX and suddenly the stops go off. I’m also rather scared of stops in general due to OTM options being more illiquid and reports of ridiculous fills happening last fall. My rationale for closing the position when the option is ATM is thats when the option greatest liquidity. Even more so if its 0 DTE ATM options. So I’m thinking that would eliminate any liquidity risks and unreasonable fills. Yes there is still quite a big hit from buying back an option ATM, but I’m hoping it won’t be catastrophic. If lets say I had 70K equity for each OTM option. I think looking at April 9th last year the 0 DTE 1 delta calls would have been something like $60 ATM (are my numbers roughly correct here?). So thats $6000 loss or a 8.5% portfolio hit on this black swan even. It’s not catastrophic and I’m hoping it happens so rare (like once in a decade or two) that I won’t be worrying about it much.
What do you think of this strategy? Spreads overnight to avoid going to 0 in a catastrophic scenario and buying back ATM to avoid liquidity risk.
Yes, good point: I like the idea of doing the ATM rule. There should be more liquidity for that strike.
One of the things I’ve learned about studying this strategy over the years is there are many levels to it and they all fit together. It’s hard to adjust something without unhinging another element of the strategy.
For 0DTE: If memory of the past couple of days serves me right, ATM puts are more like around 100-120ish around the open. Even if the figure is $60 that’s a large hit to make up for if you’re selling the very small premium options. (Obviously this is a moving target as the day progresses.) Hence, you want to be out the door way before $60. Also, a fast moving stressed market is a fast moving stressed market. You can’t really assume anything will happen. Also, real life happens and it is very easy to not be paying attention or otherwise engaged when craziness happens. I don’t think a contingent order based on the SPX does anything more for you than just using a stop or stop limit directly on the option itself. Pricing is automated between the two on the market maker’s side of the equation. (Maybe we have a markets expert who could opine on this one.)
Overnight: The only way to eliminate ON risk is a spread…but as ERN has mentioned, there’s a cost to that and it makes no sense to do so where ERN is currently selling puts. The costs eat up most of the profit and it’s just not worth it. I’ve looked at this a lot and I think you need to move up to higher deltas if you are going to do spreads so that the % trading costs are not so high.
Previously I’ve done the ERN strategy on NQ puts which are quite liquid but not SPX liquid. I’ve been bit hard with stops and stop limits (but nonetheless I’ve never not made good $$$ every year). However, my firm personal take away is, if you “really” want to be protected, then do spreads. There are no guarantees with the other two.
I personally haven’t seen ATM 0 DTE options priced at 100-120! I use 0dtespx.com to look up the data, using dates last April. For example: https://0dtespx.com/?date=2025-04-04&symbol=%2BP5120 around 1051am the put just reaches the money and hits about $44 and this was right in the thick of the 2025 tariff crash.
In fact today’s puts ATM (and we’re at the market open) are around $12-13.
I used that site to look at the data last October when liquidity dried up and ATM options still looked reasonably priced. It’s the OTM options that looked way overpriced. Thats why I feel it’s safer to buy ATM. I’m exchanging a lot of small 2 week or 3 week losses for one big big multi-month or even a really rare multi-year loss that might not happen for a decade or so.
Big typo on my part. Take off a zero!
Yeah, that makes more sense! Thanks for clarifying.
Yes, low-double-digit for ATM is much more likely.
I think 100-120 is way too high for ATM. At the market open, you may see 20-30. Likely less once the days is progressing.
But then again: is a wild market swing when IV is up you may see higher premiums.
Hi Ern,
How much of your buying power do you use each day? If I’ve ready correct, your strategy is to consume most of your Buying power and then you place new orders at 1pm so that the BP frees up from previous days positions. Is it correct to assume then that you’re using 50%+ of your BP?
thanks
I use about 60% margin for the overnights. Then fill up more with the 0DTE at the open. I have a bit more left before the close. So, I’d use almost all at the open.
Hello everyone first time posting,
I currently have 92K in my TOS(Schwab acct). The other 1.8M is in an employer sponsored Schwab retirement acct, so no go on spx options writing.
I hope to have around 130K by this summer and then apply for a PM acct. Is 130K enough for one Spx put or will I be over leveraged. Should I wait til I have 185k which is 3.4X the leverage of the notional amount of SPX at $637K. It will take about a yr to get to 185K. I guess the main question is what is good ballpark number to use for leverage again assuming I get the PM approval when I hit 125K. I do have level 3 options approval.
If I try this at 130K my leverage will be about 5X. Is that too much leverage? My brokerage acct consists of securities, bonds, and cash. I’m 52 yrs old and still a bit away from reitrement but find this to be an appealing way to make passive income.
Same answer as in the other comment. 🙂
First off thanks for all the help.
Most of my money is in a retirement acct (1.8M). So no go on spx options that acct My brokerage acct thru TOS(Schwab now) is approximately $92K.
I hope to be at $130k around this summer, which allows me to apply for PM. My question is do I still need more than 130K say around 180-200K before I can sell one put on SPX? I feel 130k is over leveraged. I remember you said ideally you want to be leveraged at 3.5-4 times the notional. In this case 185K is around 3.4 the SPX notional of $637k. Or is 130K enough to start provided I have a PM acct.
When I sell puts on SPX, it typically takes me about 95k of option buying power for selling 1 put 0 DTE. About 65k for 1 DTE
What do you mean by “option buying power”? Is it not margin that gets used up when selling options?
I have a similar account size and did my own version of ERN’s strategy for a while using XSP instead of SPX.
I think with $130k it’s a bit tight to sell one put overnight, but certainly doable. Maybe target a slightly lower premium = less risk.
Sorry for the double post , first time on this blog.
Hey Ern would love an updated opinion from you on a question of mine you once answered. Do you see any risk to the economy and public company profits/valuations if AI causes significant job loss? In a consumption driven economy, supposing AI obsoletes numerous jobs, will the market suffer? Thanks if you get a chance.
I don’t see that horror scenario. Productivity gains are positive for the economy. Like any other productivity revolution, this one will also simply mean that we create more goods with the same amount of labor input. We will not produce the same GDP with less labor input.
So considering that there is a scenario where numerous jobs are lost (transportation, factory workers, call centers, etc) resulting in a relatively high unemployment rate with reduced consumer demand, and given consumer demand is the largest driver of the stock market, still you don’t see a market crash? What am I getting wrong? If a significant proportion of the population is jobless, will the remaining workers be driving the consumption? Or do you see a kind of income redistribution/UBI? Or do you simply disagree that AI displaces workers? Thanks for the thoughts.
Again: your premise is wrong. I work under the assumption that a productivity gain from AI works out like every other productivity gain before it (steam engine, electricity, refrigeration, internet, etc.): We produce more with the same inputs. We wouldn’t just produce the same output with fewer resources.
Hi Karsten,
Thanks for providing your annual update. I had a few thoughts.
Problems with stop limit orders:
1. You may not get a fill. Say there is a true black swan and the market intraday gaps your stop limit, your limit order may not get filled as the market has already jumped past your limit order.
2. On April 9th, I can’t locate the email or comment I sent you, but there was a gentleman – Dale Perryman (IronFlyGuy) who took a fantastic loss using a stop limit, which was trade busted, though the contracts were not in his account until the following day. I think he took a $110k+ loss on that day. If you have a stop limit, aren’t you at higher risk of getting busted in a wide market (you might get very lucky/unlucky with regards to CBOE’s rules for erroneous and catastrophic fills as was the case with Dale)?
Problems with stop market orders:
1. You may get an insane fill/slippage like the 5555 fill on the 6540 strike on October 22nd. Thankfully that was NOT me. I did speak to Schwab (for 2.5 hours) and ask if the gentleman was able to get busted on that fill. The schwab (trader 3) said he was able to get busted. Would it be preferable to ask CBOE to bust a trade vs the problems mentioned above with stop limits?
Interestingly with SPY, there was no insane fill on the 654 or nearby strikes. I mentioned previously the interesting fills with greater total income despite worse tax treatment (as they are NOT 1256) – those are still filling on my side. Perhaps you have a clearer picture in IBKR. I have to look at each individual strike in TOS.
Problems with picking prominent strikes
Let’s say there’s a strike with 6555. This strike may have greater volume than 6550. If there is more volume wouldn’t that mean greater liquidity, and thus possibly less chance of insane slippage at that strike?
Also if I could remain anonymous in the reply, that would be much appreciated.
Yes, there is a tradeoff between STP and STP-LMT. If you pick the STP and LMT appropriately, there is less concern about the market jumping over your LMT.
For SPY, if you pick 654, that corresponds to 6540 in the SPX index, which is still a reasonably prominent strike. The exotic ones are ending in 05, 15, 35, etc.
I’ve never seen the 6555 have better liquidity than the 6550.
So would you always recommend going with a stop (or stop limit?) that ends in zero (i.e. 00, 10, 20, etc)?
I always try to trade the short puts and calls at those more prominent strikes and then set the STP there.
I’ve been thinking a lot about the long-dated puts add-on and wondering how you think about the sizing.
The margin req isn’t nothing – a 2200 strike, about 45-60 DTE, is still around 2.7k maint margin on IB which is 27k for 10. If it actually has 8-10x margin expansion in a big drop, that could be 270k (hopefully only very temporarily). So the sizing can start to take away from 0DTE space. However it’s pretty easy to calculate the premium per margin utilization of 0DTE vs long-dated, and in high IV times like now the long-dated has a net higher premium per margin value.
So from that perspective, it seems to make a lot of sense to scale it up when pricing is good. You’re basically selling end-of-the-world insurance. But you also certainly don’t want to end up in the bad situations you’ve written about (optionssellers.com, etc). Determining where that sizing threshold is seems to be quite tricky. Even with VIX ~28 now, I’m only seeing like 1.1x maint margin change on 2200 strikes, which is far short of 8-10x. Maybe I’m looking at it wrong.
Perhaps one should size such that a 10x margin expansion would take away half your 0DTEs? Not sure how to think about this. Is there a tool that can estimate PM margin for different SPX drop %’s?
Also moving the strike up delivers a lot more premium of course, with perhaps not much more risk (at say 3000, which is still -55% OTM of 6800) but significantly more margin.
No, you’re looking at this perfectly right. The margin requirement hasn’t expended that much, not even on 3/6.
And you’re right: you only initiate the new 60+DTE contracts if there’s a drop and a VIX spike. Of course, it’s hard to time this perfectly. I picked up a few new positions during the latest VIX spike but still not perfectly timed at the bottom (so far) on 3/9.
Great practical advice. The intersection of behavioral psychology and retirement planning is underexplored — understanding your own biases around money (loss aversion, recency bias, etc.) is arguably more important than getting the asset allocation perfectly right. Munger’s work on cognitive biases applies directly here.
Ain’t that the truth! Overcoming all those bias and approaching finance with pure mathematical rigger is probably the most profitable thing a person can do.
Hi ERN,
Do you know if this strategy could work with a Roth 401k? I currently have some after tax money at IBKR. But want to get some additional funds in there.
Probably not. You cannot write puts and calls on margin in a retirement account.
Hey Ern are there any financial or investment analysts/commentators that you find of great value, that you’d recommend, be it Youtube, a blog, a news editorialist, a podcast, etc. Thanks!
I like Rob Berger: https://www.youtube.com/@rob_berger
He’s a good guy and I agree with him essentially 99% of the time.