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1DTE, 150pts OOM should be much less risky. In this very volatile market, stay safe is more important. BTW, I also use TDAmeritrade, how to show '2.4 Delta'? I only can see integer Delta, such as 1, 2, etc.
@sl0244 I certainly agree with you, and was mostly documenting the different options.
How are folks trading the monthly with Friday AM close? Is it worth overlapping some risk?
@navypack IBKR app lists both the SPX and SPXW with 16Jun expiry. I selected the wrong one in May and got charged an exposure fee. Make sure you select the SPXW or it will double up your risk.
I love selling those AM settled options right around the close. That way I'm basically providing only overnight insurance, and this is very profitable. When the market opens I'll sell the PM settled options if I feel they're overpriced. If not, I'll wait till later to open positions for the next day.
This monthly expiration had some crazy overnight premiums. I sold the 3400p for $1.3 right at the closing bell. Felt like a bandit.
I agree those overnights on Monthly options do seem wild. I must be missing something, but I'certainly going to sell those.
I like that approach to sell Friday AM close on Thursday close and then the Friday PM close on Friday morning.
BTW, what deltas are you guys (and gals?) selling right now?
I'm still a bit traumatized from April and May's moves. Made me lose all my gains YTD.
Skew is just nowhere to be found. Since April, most hedging activity has been focused on ATM, and we OTM sellers are not seeing any serious bids. If that's not enough, implied volatility has been constantly underestimating realized volatility these past months.
With this in mind, I sell 1-2 deltas 1 DTE, sometimes even less than that. With the VIX currently at 27-28, that's about 4% OTM. This yields about $0.6 per 1 DTE contract and $1 per Friday's contract.
My deltas are around 1.5 to 2.0. About 3-4% OTM. Seems to be the sweet spot.
@earlyretirementnowcom I'm trying to square this (which does seem like very good advice esp. in this volatile market environment) with some things that were said in parts 8 and 9 of the passive income through options series. I got the impression that at least back then you were selling fewer contracts at 10 delta to lower tail risk, so wouldn't that still be the best strategy in a high volatility environment as well rather than going for the much lower 2 delta?
I say all this knowing that I did actually ride through the last couple of months at 5-10 delta and it was not an enjoyable experience, and I'm trying to see if it's really better all things equal to go further OTM to 2 delta with you and others for a smoother ride. Note that I'm still in the accumulation phase and not averse to taking more risk to get more return, but at least in the 3 months since I've been implementing this strategy I keep getting hammered regularly enough to be down about 8% for those 3 months. Admittedly this is less than the SP500 for the same time period but then I could also see it taking much longer for me to recover selling puts with the limited upside. If it seems like I'm a bit confused that's because I am but hoping to get some clarity!
@muse_ee 5-10 Delta would have been an unpleasant experience due to all the whipsaw movements. I don't think I've sold 10-Delta for quite a while. Not sure where you got that impression.
@earlyretirementnowcom Yeah that's a good catch. Looking back it looks like I incorrectly combined a couple of statements/observations from your previous articles in my head. Specifically, it does look like per the plot of put delta over time from part 9 that back in 2017 you were at close to 10 delta to juice returns, but clearly since then and esp. since the pandemic it looks like delta closer to 2 and then slowly rising to 4? (but I did also pick up from rereading your posts that you're not selling constant delta but rather aiming for constant daily return)
So my confusion aside (sorry again), I think the heart of my original question is whether for someone who is still in the accumulation phase and willing to take more risk for higher expected return, where do you think the sweet spot for put selling at 1DTE is? Would you still do fixed daily yield at low (2-4ish) delta? Or would you expect a strategy that goes higher delta around 5-10 and sticks with that strategy over time would end up with a higher expected return?
From looking at the different studies at Spintwig.com, there's no question that in the long run, higher Delta equals higher CAGR. This is because more Delta means more equity exposure, and equities have (had? Haha) an upward bias. However, this comes at considerably higher risk. So if you're have the guts and the margin, you'd probably be better off in the long run with increasing your Delta.
However! By the same logic, buy and hold outperforms any short put strategy (higher CAGR but also higher vol). This should be obvious because long stock is 1.00 Delta exposure. So if the end result is what you care about, buy and hold should the better, but less interesting course of action.
@ohadost Correct. It's a tradeoff. Because you're facing more risk with higher Delta puts you also sell fewer. So, the simple comparison of different Delta CAGR is not that meaningful. You have to find the right balance between income and risk. Between the probability of OTM losses and their intensity.