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Stopped selling short dated puts for the time being. Currently running a long LEAP (Dec'22) and 2 short puts (September'21). These are using XSP, instead of SPX. Don't have enough money for SPX right now.
Even if a sell off happens on Monday it will feel more of like a tickle rather than getting caught with my pants down. In that case I'll be able to close the short puts for a loss and start doing the regular SPX writing strategy if VIX is elevated enough for my own personal liking. And if there is no sell off till May then I'll gain some value on the options.
Skipped Friday due to huge jump in last 5 minutes.
Another low IV end of day. Set up at 4135 at close for $1. Only 50 points OTM, which is getting really close to a 1% OTM threshold that I’m not sure I will want to cross!
I've been testing out naked calls with puts since there's been consistent up days. I sold the put today for .60 at 4070 strike. Sold call for 1.15 at 4225 strike.
@fi4wanderlust I avoid short calls since they’re correlated with my regular portfolio and with IV contractions so there isn’t the opportunity to make it up after your strikes get hit. I also just didn’t want to touch the part of the tax form about 1256 straddles because it seems like more work to report. But it’s a really common approach so good luck!
I’m more likely to do the following with low IV:
- reduce premium targets
- buy leaps and continue to sell puts against them
- be less aggressive on same day puts as it’s simply not as valuable with low premium
I didn't realize there's additional information to fill out on the tax form if you do a straddle. What I'm doing is a strangle which is probably an inverse of that strategy. Will that create more tax headaches too? I have an accountant but would also like to know what needs to be filled out.
@fi4wanderlust Not sure but here’s the tax form https://www.irs.gov/pub/irs-pdf/f6781.pdf
@nobatmanjokes I'm not a tax attorney, but I don't think the language about straddles applies to us. If you were to trade a straddle, it would still show up as Section 1256 contract profits/losses on the tax forms you receive from your broker.
Source: https://support.taxslayer.com/hc/en-us/articles/360017749751-What-are-Contracts-and-Straddles-
A straddle exists when you make counteracting positions on personal properties that are actively traded (both a call and put option for the same security at the same time).
So, it sounds like, these would be straddles on some other assets/properties. Not really the SPX index.
@earlyretirementnowcom Yeah not an expert either but I always assumed the intent of the straddles section is for people who fully hedge their position to try get out the market without realizing gains.
On Monday (3rd), I sold 4080 Strike for 1.05 near the open and 0.90 at the close. Luckily, I wasn't near phone to check much today.
Do folks think stimulus is giving markets a tail wind to minimize down days, or are we just building up for an ugly two-day drop?
@navypack Both! I think the stimulus + fed keeping rates low & buying bonds will continue to slowly levitate the stock market until there's some unexpected bad news and then the drop will come. Obv, no one knows how much more it will grow before dropping and doesn't know how big the drop will be. As they say stocks "take the stairs up and express elevator down"! Hard to know what will be in the impetus for the next drop: inflation? N. Korea/Russia/Iran? Tech/Crypto bubble burst? Delayed bankruptcies from 2020 coming due? vaccine resistant strain of covid?
Agree. Something will come out of the left-field again. It's impossible to time. I do what I always do: collect my premium and if/when the blowup happens I will probably lose about half of the accumulated cash.
For Monday I'm selling at 4050-4080. 150+ points OTM. Looks like a good cushion.
@earlyretirementnowcom this is why I still follow the rule of thumb to keep at least 2% of the notional value in cash. As I’m still earning I usually take a little more delta than you but not by too much!
Especially weekend premium has felt low given the list of possible surprises that could break outside of market hours. But I’ve learned long ago that I don’t know better so I stick to the plan knowing there will be losses along the way.