Options Trading Series: Part 14 – Year 2025 Review

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:

1. 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.
2. 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.
3. 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.
4. 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.
5. 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.
6. 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 uner $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.

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.