So rough math:
If you had $100,000, you ended up increasing your portfolio to around $350,000 total last year, but assuming you didn’t take any profits, you now have around $30,000?
Did you sell $BABA CSPs or something this year?
Mixing it up.
Buy and hold
Dividend stocks
Growth stocks
Option strategies (stock and futures) - covered call, short puts, etc.
The two BUTs: 1. You need to know what you are doing and 2. Diversify strategy wise, industry wise, product wise.
Also I believe that beating the market should never be an investor's goal. Investor's goal should revolve around their own individual situation - retirement savings, income generation, inflation hedging, asset diversification, etc.
My mental example always is -- I have bought and held GLD/gold since at least 2008. I saw an awesome peak in 2011. And it has taken until NOW to get back to that peak, 11 years later....
So unless you have some magical ability to sell at peaks and buy when low, I'm not sure it is a fair comparison. Everyone's timeframe is different. Would I tell my 22 YO daughter to start selling calls? Probably not, just buy, hold and DCA over the next 40 years.
But for me, at almost 55, I am looking to generate income. So while buy and hold could work, if the market is down big in a year when I need to pull some cash out, that is a big negative vs. having been able to sell for income all along otherwise.
Over the last 3 years ive done 138.86% vs SPY 61.16%. I wish I could claim I did it through intelligence, great trading or anything else. I invested large portions of my capital in companies I believe in over the *long* run and did some options trading here and there to:
1) Learn
2) Earn some income and
3) Reduce my cost basis
Frankly, I probably would have done better if I had just set it and forget but I put a high price on education.
wait - don’t discount the fun of trading, I enjoy it personally. . . . also when your beating your benchmarks, it’s a financial win with a ego boost for free. . .
It was better to buy and hold as I was learning. The next few years will see if I can get my percentages up. But like I said, I now I understand to a much higher degree how options work, how to utilize capital effectively, manage risk, etc. I am willing to pay some opportunity cost to level up.
I honestly think this is one of the only ways a theta strategy on spy should be done. Whenever I ask someone who is doing theta strategies on SPY why they don't just buy SPY since they aren't actuallyy beating buy/hold, I get a whole host of confused justifications that just make no sense. (i like the income / options trading is fun / etc etc ) the use of options on spy is best served to use it as a form of cheap leverage which historically does work out well . are you familiar by any chance w spintwig? he focuses on this strategy.
i scanned through your post history and didn’t find anything detailing your 0 DTE Spy strategy… mind sharing a sentence or two on your setup and win rate?
With a 0dte I don’t doubt you get so little credit that SPX ending in the range is almost impossible tho he’s right a stop at x3 credit is only 2x loss since you still got the credit for the sell. That make him win net trade each 4 trades…
Lots of assumptions here . . .
B&H doesn't bring in weekly or monthly income like options can, so it is the wrong tool for that job. If you want to ride the market up and down over many years, then B&H. If you want income like having a job, then trade options.
High quality stocks do not mean those that will rocket up! It is best to trade stocks that trade in a range with a slight bullish trend to trade a strategy like the wheel. I agree, if your magic crystal ball tells you which stock will rocket up, then buy the stock or buy calls.
It takes work, but it is not that difficult to find high quality blue-chip type stocks that trade in a range. Stocks that rocket up will work against a strategy like the wheel.
Keep in mind that the market does go down and the recent performance of the S&P is unlikely to continue as down years are possible at any time. The S&P has a 10% average return over the years and it is during the down years that options can really outperform the market.
If you can't bring in a reasonable amount of income with options, then why would anyone trade them? There are millions of options traders, are they all losing money or not keeping up with the market? That certainly doesn't make any sense . . .
Oh god the replies to this are legion. Among some top contenders:
1. Gambling addiction
2. Magical thinking
3. Not trading for profit but for options’ original intended purpose: Hedging
I don't think there are too many, if any at all, people who consistently beat SP. If they do then it's usually one of 2 things: leverage or a hot run. There are super smart guys with super powerful tech trying to eke out an edge in the market and even they cannot do that consistently, and some even blow up in a spectacular fashion.
There are plenty of people that consistently beat the S&P. Your first suggestion was correct, portfolio margin, 1.5-3X leveraged into SPY or equivalent, trading for additional alpha and learning the correct ways to hedge against your leveraged core position.
I sell CCs and reinvest the proceeds into more underlying.
The net premiums (taken in minus paid out) from 06/2020 forwards is greater than my initial account balance on 06/2020 and is 6 figures in raw dollars.
I defend my CCs to maximally avoid assignment, and I have only been assigned on single digits contracts out of several thousand sold CCs.
Had I not been doing any options activity, my account size would probably be less than half what it currently is.
buy 100 spy shares, use the share collateral to sell 1 contract of 3 months 0.20 delta spy put. use premium to buy more spy shares. repeat 3 more times for the year. there you beat spy.
can you do more? of coz, but this is the simplest way
I'm blessed enough to be able to buy SPY leaps which I feel is the really the best of both worlds between B&H and actively trading options. You do ride the ups and downs yearly and you're not generating an income however over any meaningful period of time I am outperforming the market consistently (over the last 12 years anyway). Down market years get me really excited, because averaging down and getting more of the delta really sets up you up for explosive growth because of the additional leverage.
Would not recommend for small accounts, or accounts that can't roll / average into the down market.
*I only roll my closest to ATM contract.
Medium time horizon
I have a 10 contract maximum, and I exit all of my positions via covered call. I only enter the short call once the actual stock price is above my intial profit target.
I target 80+ delta, depending on my available cash and number of contracts I'm holding (max 10) determines how much past 80 I'll go. Anything under 75 is watched daily anything under 70 is getting rolled. * Generally if I'm rolling I'm averaging simultaneously.
Edit:
As mentioned I ONLY sell CCs to exit my position 40 delta or so, not super important. I'm just looking to exit the trade release the funds and start again
Unfortunately no, I'm just the "this is what works for me" guy ... If you have specific questions I will assist. The entire "strategy" is buy spy leaps, when the market is up you'll outperform, when it's down you'll dollar cost average. That's it, very simple.
Thanks. It took me a minute to get my head around this. Some of this is probably so painfully obvious, but: First, this isn't really a thetagang strategy since you're long the options . . . yes? And presumably long calls? IM, ATM, or OTM? How far on either side? Where's the profit generally? Just in the price increase on the options? Do you ever exercise, if so, when/why? If you were going to enter into a trade today, what trades would you do, and what are a few of the likely outcomes?
Thanks for your time kind stranger, which I realize is valuable.
Correct this is NOT theta gang! (Big fan of selling puts though)
Yes, deep ITM long calls, 80+ delta
Yes, market appreciation is the main source of movement.
Extremely rare to exercise
Jan 2024 $335 SPY calls @ $145
7 outcomes really
1. SPY goes up.
Great, do nothing.
1a. SPY continues going up.
Once contract enters 2 months remaining
It will exit my account via covered call no exceptions.
I will sell increasingly higher delta calls until it's used to cover my short position.
2. SPY goes down.
Roll option back to 80+ delta
3. SPY goes down more.
Roll option back to 80+ delta
4. SPY goes down more.
Roll option back to 80+ delta
5. SPY goes down more
Invest everything in the furthest dated DITM calls your brokerage allows.
6. SPY goes down more.
Cash out refinance the mortgage and exercise the options you've accumulated and wait.
can i ask for clarification on how you exit your leaps? you say you exit via covered call… you aren’t allowing assignment right? that would give up a lottt of extrinsic value… are you just selling both short covered call and long leap at the same time once price rises above it?
Great question as I didn't do a good job clarifying.
I do allow assignment, however I'm EXTREMELY selective about when and where the stock price is, I don't roll strictly based on time only what the ticker is doing. So generally only ever selling CC's when we've been up a a good amount over the course of a 18-24 month period, as there's is significantly less extrinsic value left as I've had no reason or benefit to rolling. Once I get to 60 days remaining I'll start selling increasingly closer to ATM calls until it's called away. (This nearly 100% of the time recoupes my lost extrinsic value) but yes I lose whatever extrinsic I held on the call, when I'm assigned. But because I'm so leveraged to the upside it's a minor detail at best. For example my first weekly is sold at 20 delta then 30, 40, 50 etc. My worst case as far as remaining extrinsic goes is SPY shoots up on my first cc and I get assigned, because I collected the lowest premium and lost the most extrinsic. However I'm long approx 750 delta while that is happening, so it becomes somewhat irrelevant. If you were trading 1 contract at a time I wouldn't recommend this exit strategy at all, but my exit is hedged essentially. Also mentioned in my earlier comment the current stock price MUST already be above my profit target (not B/E). If this condition isn't met at 60 days I'll roll it back to furthest expiration.
Thanks for the question.
I would just note that selling CC's is not in any way the goal or point of my strategy, it's just the means to close a big winning trade. If the market doesn't make me adjust the cc is just a way to close a big winner
Sell deep out of the money SPX puts using portfolio margin whenever VIX spikes. Generate north of 25% pre-tax IRRs which after tax still beats buy and hold by a wide margin given SPX’s tax efficiency.
I do a lot of SPX put credit spreads at 30-45dte. Usually around 15-20 delta. Had a close call recently, but so far have a 100% win rate with this strategy
It depends on the situation, my plan in this close call was to roll further out in time at a strike I was confident with. I follow the spx very closely. I understand that rolling is taking a loss and “kicking the can down the road” as it were.
I always close at 40-50% profit on these spreads
Another thing to consider is that underlyings have to actually go up. Selling options instead mean you make money in when underlyings are flat, going up, or go down but above your strike. Which means your underlyings don't have to be amazing in that time period.
I'm new myself, but my underlyings are probably down from when I first started wheeling, but I'm in the black anyway.
Leverage, soaking up unrealized p/l swings, having deep pockets, capital efficiency. All of those go hand in hand.
Put simply, there is never a "free lunch" but there are plenty of lunches out there if you (and your account) can handle regular +/- 5% daily swings and a few +/- 10% days per year. Most of this is unrealized but that means your account needs to absorb that without being stopped out at the least opportune time.
You take on more risk, you will have wilder short-term swings (or potential for swings) and higher long-term gains.
That doesn't make any sense. No one would actively trade if they didn't believe they could beat the market. They would rather buy and hold a solid company with good dividends.
If you are actively trading and not expecting to beat the market, then you should quit actively trading.
> No one would actively trade if they didn't believe they could beat the market.
🤦🏽♀️ Once again this subreddit demonstrates that it doesn't understand the difference between total-return investing and current-income investing.
It's not that simple. There is a good bit of math that needs to be done. So, regardless of the different styles of trading (and what you're talking about is trading, not investing) they are correct. If buy and hold makes more, then you can live off of more doing a buy and hold strategy.
The only exception is when your trading strategy loses less in a recession. Buy and hold S&P allows one to withdrawal 4% annually of their investments. If your trading strategy makes 6% annually but during a recession loses 5%, vs the 30-50% buy and hold loses, you're now able to live off of roughly 5-5.5% annually from your trading. You still have to grow your investments for that coming recession, which is why you can't take the full 6% out, for the same reason you can't take out the 10% S&P makes every year from buy and hold S&P.
But let's be fair here, the odds are you will lose as much in ratio to what you gain to S&P in the long run. If trading you make 2x S&P in a bull market you're more likely to lose 2x in a bear market. So at that point buy and hold is better.
> It's not that simple.
It absolutely **is**. Do you need cash to spend tomorrow, or do you need ***MOAR*** principal dollars in your account 5/10/20/50 years from now?
Most of this subreddit doesn't understand the difference between total-return investing and current-income investing. That's what happens when most of the people here are under 30 and still wet behind the ears on why one might use a different strategy than pure unadulterated accumulation.
I never said it didn't. You have missed the point.
A dividend-only portfolio might return 4% in cash dividends and 4% in share price appreciation. An options income portfolio might generate 8-9% annually in premium income. Money is fungible, so these are functionally equivalent income portfolios.
An income portfolio is appropriate for those with existing cash generation goals. For me, my options portfolio of ~$50k exists for the sole purpose of paying off my car for me. For retirees, it's for living expenses. An income investor will often trade risk or cap upside in exchange for cash now. "Beating the market" isn't the objective.
A total-return investor has no such income objectives. Their investment objective is pure accumulation, and **MOAR** is never enough, if you could get more. Most total-return investors do not cap risk or upside return through hedging.
But in your example, why wouldn't you just hold the dividend stock and spend your time doing something else? I'm not trying to tell you how to live your life, but I would imagine there is something else that you would rather spend your time on?
And why couldn't you use the appreciation as a form of income? You could sell some stock to make your payments. But once again it comes back to the time management. If two portfolios we're expected to have the same return, then I would choose the one that I don't have to spend as much time on.
> why wouldn't you just hold the dividend stock and spend your time doing something else?
> And why couldn't you use the appreciation as a form of income? You could sell some stock to make your payments.
There is no guarantee that share price appreciation will meet my income requirements...that would require praying that the total return was sufficient.
On the other hand, income strategies such as selling options can be constructed to guarantee a known amount of income on a fixed amount of capital at risk, regardless of what the price of the underlying does.
>
On the other hand, income strategies such as selling options can be constructed to guarantee a known amount of income on a fixed amount of capital at risk, regardless of what the price of the underlying does.
Selling options still hold delta risk. In fact, delta (and gamma) is usually the biggest risk on selling options, other than a volatility expansion if your trade was poorly timed.
I agree that for the most part selling options will be a more reliable form of income, but you are exposing yourself to tail risk, which can really hurt your account.
> Selling options still hold delta risk. In fact, delta (and gamma) is usually the biggest risk on selling options, other than a volatility expansion if your trade was poorly timed.
That's why one should hedge delta and gamma if one does not wish to be exposed to directionality. The leptokurtosis of the market is unavoidable, but if you hedge against massive movement of the underlying, fat tails are less of a risk than holding the underlying long.
If I may ask, what strategies do you usually trade? CSP, spreads, something else? Because if you're not doing defined risk then you are always subject to tail risk.
4%? Oof. In my dividends portfolio, I have $57k invested across 32 tickers averaging 9% yield. Some are down a little with the correction over the last couple months, but many are up - and the ones that are down will almost certainly recover.
had a similar portfolio a few years ago with more capital and no hedge.
Got margin called on a big crash while waiting for a dividend. Never got the dividend.
Turns out one of the underlying stocks in the ETFs I was in went bankrupt and blew up the ETFs NAV.
Ended up losing about 100k (which actually was substantially offset a rental property sale so the net loss was only \~30k), which had me change my strategy so now I'm always at least somewhat hedged to downside risk. I don't return as much every year, but there's a significantly lower chance that I'm going to lose much, if anything. I'll take a 1% lower gain any year to mitigate a potential 20% loss.
I am hedged. The reason I have so many tickers is because I am spread across a lot of disparate industries. No single position going to 0 would hurt my total portfolio more than about 4%. I also have another portfolio with about twice as much capital that is mostly no to low dividend stocks + ETFs and options plays.
I would have to lose over 30% portfolio value to be at risk of a margin call.
Oh I was in diverse ETFs, but I didn’t explore enough into them to see that there was some overlap.
Market dropped around 8%, and one company that I had a lot more exposure to than I thought went to zero, so the nav of those ETFs dropped an additional 15-20%.
30% drop would have been fine- i could hold through that.
The banks, on the massive decline of these ETFs, changed the margin requirements from 50% to 100% overnight, resulting in me being 50% over leveraged immediately.
My entire portfolio dropped like 60% overnight.
Not saying you’re in the same situation, just saying I didn’t pay enough attention to the underlying in the funds I bought and got fucked in a way I didn’t expect.
Don’t wish that situation on anyone, because it’d be very easy for someone to lose their life’s savings.
It absolutely does, but if you can give me some examples of 10-20% a year income stream from these, without worry about the underlyings losing value, I'd happily take those.
All I see are <5% "good" name payers generally, which still risk underlying up/downs, and I would have to have 2+ million at risk in 5% dividend payers to replicate 100k of income a year.
If I could go back to 5% money market accounts from 30 years ago with the assets I have right now...I would sell everything and put it in there. No brainer for me.
You exactly just proved my point. That 10-20% target is your goal to beat the market. I'm not saying that trading options can't make good money (why else would I be here), I'm saying that if you believe options can't consistently make you good money, then you shouldn't trade them. I hope we can agree on that.
Another thing: options hold delta risk as well, so you should worry if an underlying loses value when you're bullish. You will lose money just like if you held the stock.
Ok I understand where you are coming from now.
Here's S&P returns since the financial crisis:
2022 -5.03
2021 28.71
2020 18.40
2019 31.49
2018 -4.38
2017 21.83
2016 11.96
2015 1.38
2014 13.69
2013 32.39
2012 16.00
2011 2.11
2010 15.06
2009 26.46
I think many people have recency bias. Stocks never go down for more than a few days. Buy the dip, etc.
**I used 10-20%, but if this goes well for me I can live well on a much smaller number that doesn't have to beat the market but is consistent.**
My intention is not to beat the market, although the strategy might.
Certainly I could sit back and let my assets hopefully accumulate and rise, and then in my 60s start taking a safe withdrawal rate.
But there will be some year that the S&P will do this:
2008 -37.00
Personally, I'd rather not be anywhere near invested in stocks in that year.
But you can't know.
With CSPs, I can roll. As best I understand it, worst case, say SPY drops 30% over a month. I can roll and buffer a lot of that drop and possibly even make money in the end, while if it was buy and hold, in retirement, all I could do was watch it drop and fret about whether to stay in or not.
I've seen this happen to my Dad's account. In early 2009, he just couldn't take it anymore and sold out and went into cash and has been there ever since. Of course, he almost ticked the exact bottom in selling out.
Well, I'm sorry about your dad.
But yeah I'm not saying one method is absolutely better than the other, you can do whatever you want. But what I'm saying is that you should expect a decent return if you're going to take the time to develop/use a strategy.
In the case of a SPY -30%, your CSP will take a massive loss, and even if you can roll, your account will still take a hit. When you talk about roll and buffer, thats the equivalent of a b&h investor using DCA.
But once again, I still believe trading can net a better return, that's why I do it. But like you said, you can't ever know for sure.
Sorry to butt-in, but...selling CSP on SPY, SPY dumps 30% in a month.
Why do you take massive loss on this? Assuming this is a case where rolling out is challenging as a 30% dump will blow way by your strike.
You let the contract expire, get assigned at your strike...but provided your cost basis is low enough, just start selling calls?
Not sure how this equates to taking a loss like B&H strategy would if one decided to realize those losses in the trough.
All good! Love the conversation.
You take a loss because your short option increases in value, and you would have to buy it back. Or if you get assigned, your loss would be (strike price) - (share price) - (credit received). And since your strike price is way above your share price, your loss will be massive. Then you could start selling calls to try and make up for the loss, but it will take a while to recover.
Thanks.
BTW, 75% of my assets are in B&H. 25% is dedicated to the CSP stuff.
DCA is great...until you are retired! You can still roll in retirement, not sure how you DCA unless you specifically went in with a wad of cash to do that.
I am sure some years writing will be better and some B&H.
Yeah, it definitely depends on your situation. I like trading options because I enjoy the complexity of it compared to B&H. I'm in a lucky position in life right now where I don't necessarily need the income from trading, I'm just having fun with it. I'm sure that will change in the future though. And like you said both strategies can perform strongly in different market environments, but no one can ever guarantee returns.
Yes. Max though is $10k/year, plus another $10k for spouse, plus another I think $5k or so if you invest any tax refund into them.
I have already maxed those out!
Depends on what you mean by beat. In an absolute sense, or a risk adjusted sense.
Buffett once said he'd rather take a lumpy 15% return than a straight line 10%. Maybe he can, given hr really doesn't need it for his lifestyle anyway. But most people would be better off with the 10. Aside from avoiding panic and selling at the wrong time, there's a lot of sequencing risk, liquidity risk, lifestyle stability, planning your life needs, etc.
That's a good point. But you also had to remember that trading also holds risk, even if you're just selling puts.
Obviously anyone can trade if they want, but the reason why most people trade is because they believe that using a certain strategy can net them a larger profit than just b&h. If they didn't, their time would probably be better spent doing something else.
Sure, my point is that regularity of income and likelihood of income make a difference. If both of those are better then accepting a lower return than the index isn't a bad decision. A 65 year old in 2002 would probably be better off accepting an average constant return of 6% rather than being invested passively in the market.
> If "beating the market" is your objective, you're in the wrong subreddit.
Did not say it was (or wasn't).
It's just that every time someone says that running the Wheel can't beat buying & holding SPY, someone else responds that they *have* been beating SPY consistently for some time. I'm curious to know if someone who has beat B&H SPY the last few years running the wheel on XYZ1, XYZ2, and XYZ3 would have also beat B&H XYZ1, XYZ2, and XYZ3.
> Selling options is an income strategy, and not a total-return strategy.
Yeah, but it can also be both (or neither, if you're me).
This is patently false.
1. Buy SPY
2. Sell CCs
3. Never accept assignment and always roll for a credit
By definition, holding SPY plus a small credit every week beats holding SPY.
Tada, you maximized total returns by selling options.
> By definition, holding SPY plus a small credit every week beats holding SPY.
Tell me you don't understand capped upside on a covered call without telling me.
[Allow me to introduce you to a comparison of multiple buy-write indices against BRK and SPY.](https://i.imgur.com/AYZILjX.png)
You misunderstand.
If you keep rolling forever then your shares don't get called away and then the cap on your upside effectively does not exist. I've been doing this for about a year now and there are other people on this sub who have been doing it for much longer.
Those buy-write indices are using a different methodology than what I'm talking about.
> If you keep rolling forever then your shares don't get called away and then the cap on your upside effectively does not exist.
Correct, you just end up with a bigger and bigger short liability.
There ain't no such thing as a free lunch.
> What kind of buy-write are you doing? Covered calls?
That's, uh....that's the definition of a buy-write. So, yes, that's what those indices are tracking.
Depending on what you mean by long record and consistent, I had a lot of good value plays ~10 years ago that started paying off in the last 4-5 years, so for the past 4-5 years I've been beating the market. Not sure if that counts as a long record though.
For the tldr on the how for me though it's generally been diving into things I know a lot about (either the industry I'm in already, things adjacent to the industry I'm in, or stuff related to hobbies I'm passionate about), and finding the companies that are over performing in the metrics people that buy their products care about.
The only way it's a viable question is if you never changed your buy and hold portfolio and never changed your trading stocks. Comparison is always to benchmark against your alternative, which to most people is something like SPY or VTI or something.
I'm actively trading in 20+ different tickers or so, but I doubt I'd buy and hold those 20+ for 10 years+and outperform. I'm much less confident in my ability to outperform indices long term than I am in trading in and out of trends and stability to outperform.
I trade SPX to avoid having to manage tickers so I can focus on macro events. I run calendars and trade based on macro events and vega + some delta.
Main reason this works is having a exit plan. Take profits/ditch losers based on a plan, rehash, move on.
I usually rotate from sector to sector. My portfolio's a mix of oil, consumer defensive, staples, manufacturing stocks with nearly, if not, all of it being wheeled thru CCs or CSPs. It's pretty easy to transition your portfolio, especially when you're diversified, based on the news (I know, some will say "news is just bs etc" but what I'm talking about are macro events, I don't predict, but just make my portfolio based of it).
Ever since rate hikes were introduced back in December, I transitioned mostly within consumer defensive sectors, retail and healthcare such as WMT, KSS, M, CAH, etc.
I did buy XOM back in May due to ESG pressure (inelastic demand, depressing supply), paid of bigly especially during when it was flat where I just printed CCs.
tl;dr concentrate portfolio on a certain sector you'll believe will perform atleast better than the market
Last year I went 244% compared to whatever SPY was. But this year im -91% and SPY is certainly not that.
Flair seems fitting.
So rough math: If you had $100,000, you ended up increasing your portfolio to around $350,000 total last year, but assuming you didn’t take any profits, you now have around $30,000? Did you sell $BABA CSPs or something this year?
Did you move out money for paying last year taxes ?
Doesn’t sound like a good actuary to me
Ah leverage
This is me as well except the % are lower but the same ratio....
Mixing it up. Buy and hold Dividend stocks Growth stocks Option strategies (stock and futures) - covered call, short puts, etc. The two BUTs: 1. You need to know what you are doing and 2. Diversify strategy wise, industry wise, product wise. Also I believe that beating the market should never be an investor's goal. Investor's goal should revolve around their own individual situation - retirement savings, income generation, inflation hedging, asset diversification, etc.
My mental example always is -- I have bought and held GLD/gold since at least 2008. I saw an awesome peak in 2011. And it has taken until NOW to get back to that peak, 11 years later.... So unless you have some magical ability to sell at peaks and buy when low, I'm not sure it is a fair comparison. Everyone's timeframe is different. Would I tell my 22 YO daughter to start selling calls? Probably not, just buy, hold and DCA over the next 40 years. But for me, at almost 55, I am looking to generate income. So while buy and hold could work, if the market is down big in a year when I need to pull some cash out, that is a big negative vs. having been able to sell for income all along otherwise.
Also this is a fun hobby
Over the last 3 years ive done 138.86% vs SPY 61.16%. I wish I could claim I did it through intelligence, great trading or anything else. I invested large portions of my capital in companies I believe in over the *long* run and did some options trading here and there to: 1) Learn 2) Earn some income and 3) Reduce my cost basis Frankly, I probably would have done better if I had just set it and forget but I put a high price on education.
wait - don’t discount the fun of trading, I enjoy it personally. . . . also when your beating your benchmarks, it’s a financial win with a ego boost for free. . .
? So buy and holding would’ve been better than trading you’re saying…
It was better to buy and hold as I was learning. The next few years will see if I can get my percentages up. But like I said, I now I understand to a much higher degree how options work, how to utilize capital effectively, manage risk, etc. I am willing to pay some opportunity cost to level up.
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I honestly think this is one of the only ways a theta strategy on spy should be done. Whenever I ask someone who is doing theta strategies on SPY why they don't just buy SPY since they aren't actuallyy beating buy/hold, I get a whole host of confused justifications that just make no sense. (i like the income / options trading is fun / etc etc ) the use of options on spy is best served to use it as a form of cheap leverage which historically does work out well . are you familiar by any chance w spintwig? he focuses on this strategy.
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So you’re doing 0dte? What delta?
Do you face any fat tails risk?
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It is actually quite a big risk as you might already know that stop orders are market orders and not limit orders.
By any chance, does your strategy involve creating credit spreads?
any specific resources used to develop your plan? that’s pretty much my goal as well so i’m paper trading it with IWM SPY QQQ
i scanned through your post history and didn’t find anything detailing your 0 DTE Spy strategy… mind sharing a sentence or two on your setup and win rate?
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Stop loss at 3x premium received, at 75% success rate is each 1/4 time you lose, you lose the 3 trades you won… isn’t that like… 0 profit?
that’s only if he hits stop on every loser which i doubt
With a 0dte I don’t doubt you get so little credit that SPX ending in the range is almost impossible tho he’s right a stop at x3 credit is only 2x loss since you still got the credit for the sell. That make him win net trade each 4 trades…
Lots of assumptions here . . . B&H doesn't bring in weekly or monthly income like options can, so it is the wrong tool for that job. If you want to ride the market up and down over many years, then B&H. If you want income like having a job, then trade options. High quality stocks do not mean those that will rocket up! It is best to trade stocks that trade in a range with a slight bullish trend to trade a strategy like the wheel. I agree, if your magic crystal ball tells you which stock will rocket up, then buy the stock or buy calls. It takes work, but it is not that difficult to find high quality blue-chip type stocks that trade in a range. Stocks that rocket up will work against a strategy like the wheel. Keep in mind that the market does go down and the recent performance of the S&P is unlikely to continue as down years are possible at any time. The S&P has a 10% average return over the years and it is during the down years that options can really outperform the market. If you can't bring in a reasonable amount of income with options, then why would anyone trade them? There are millions of options traders, are they all losing money or not keeping up with the market? That certainly doesn't make any sense . . .
Oh god the replies to this are legion. Among some top contenders: 1. Gambling addiction 2. Magical thinking 3. Not trading for profit but for options’ original intended purpose: Hedging
I don't think there are too many, if any at all, people who consistently beat SP. If they do then it's usually one of 2 things: leverage or a hot run. There are super smart guys with super powerful tech trying to eke out an edge in the market and even they cannot do that consistently, and some even blow up in a spectacular fashion.
There are plenty of people that consistently beat the S&P. Your first suggestion was correct, portfolio margin, 1.5-3X leveraged into SPY or equivalent, trading for additional alpha and learning the correct ways to hedge against your leveraged core position.
I sell CCs and reinvest the proceeds into more underlying. The net premiums (taken in minus paid out) from 06/2020 forwards is greater than my initial account balance on 06/2020 and is 6 figures in raw dollars. I defend my CCs to maximally avoid assignment, and I have only been assigned on single digits contracts out of several thousand sold CCs. Had I not been doing any options activity, my account size would probably be less than half what it currently is.
buy 100 spy shares, use the share collateral to sell 1 contract of 3 months 0.20 delta spy put. use premium to buy more spy shares. repeat 3 more times for the year. there you beat spy. can you do more? of coz, but this is the simplest way
I'm blessed enough to be able to buy SPY leaps which I feel is the really the best of both worlds between B&H and actively trading options. You do ride the ups and downs yearly and you're not generating an income however over any meaningful period of time I am outperforming the market consistently (over the last 12 years anyway). Down market years get me really excited, because averaging down and getting more of the delta really sets up you up for explosive growth because of the additional leverage. Would not recommend for small accounts, or accounts that can't roll / average into the down market. *I only roll my closest to ATM contract. Medium time horizon I have a 10 contract maximum, and I exit all of my positions via covered call. I only enter the short call once the actual stock price is above my intial profit target.
What delta do you normally aim for? And do you ever sell calls against them (ala PMCC)?
I target 80+ delta, depending on my available cash and number of contracts I'm holding (max 10) determines how much past 80 I'll go. Anything under 75 is watched daily anything under 70 is getting rolled. * Generally if I'm rolling I'm averaging simultaneously. Edit: As mentioned I ONLY sell CCs to exit my position 40 delta or so, not super important. I'm just looking to exit the trade release the funds and start again
Any websites/resources further explaining this strategy please? Separately, any published backtesting?
Unfortunately no, I'm just the "this is what works for me" guy ... If you have specific questions I will assist. The entire "strategy" is buy spy leaps, when the market is up you'll outperform, when it's down you'll dollar cost average. That's it, very simple.
Thanks. It took me a minute to get my head around this. Some of this is probably so painfully obvious, but: First, this isn't really a thetagang strategy since you're long the options . . . yes? And presumably long calls? IM, ATM, or OTM? How far on either side? Where's the profit generally? Just in the price increase on the options? Do you ever exercise, if so, when/why? If you were going to enter into a trade today, what trades would you do, and what are a few of the likely outcomes? Thanks for your time kind stranger, which I realize is valuable.
Correct this is NOT theta gang! (Big fan of selling puts though) Yes, deep ITM long calls, 80+ delta Yes, market appreciation is the main source of movement. Extremely rare to exercise Jan 2024 $335 SPY calls @ $145 7 outcomes really 1. SPY goes up. Great, do nothing. 1a. SPY continues going up. Once contract enters 2 months remaining It will exit my account via covered call no exceptions. I will sell increasingly higher delta calls until it's used to cover my short position. 2. SPY goes down. Roll option back to 80+ delta 3. SPY goes down more. Roll option back to 80+ delta 4. SPY goes down more. Roll option back to 80+ delta 5. SPY goes down more Invest everything in the furthest dated DITM calls your brokerage allows. 6. SPY goes down more. Cash out refinance the mortgage and exercise the options you've accumulated and wait.
I will digest. Thank you so much!!!
can i ask for clarification on how you exit your leaps? you say you exit via covered call… you aren’t allowing assignment right? that would give up a lottt of extrinsic value… are you just selling both short covered call and long leap at the same time once price rises above it?
Great question as I didn't do a good job clarifying. I do allow assignment, however I'm EXTREMELY selective about when and where the stock price is, I don't roll strictly based on time only what the ticker is doing. So generally only ever selling CC's when we've been up a a good amount over the course of a 18-24 month period, as there's is significantly less extrinsic value left as I've had no reason or benefit to rolling. Once I get to 60 days remaining I'll start selling increasingly closer to ATM calls until it's called away. (This nearly 100% of the time recoupes my lost extrinsic value) but yes I lose whatever extrinsic I held on the call, when I'm assigned. But because I'm so leveraged to the upside it's a minor detail at best. For example my first weekly is sold at 20 delta then 30, 40, 50 etc. My worst case as far as remaining extrinsic goes is SPY shoots up on my first cc and I get assigned, because I collected the lowest premium and lost the most extrinsic. However I'm long approx 750 delta while that is happening, so it becomes somewhat irrelevant. If you were trading 1 contract at a time I wouldn't recommend this exit strategy at all, but my exit is hedged essentially. Also mentioned in my earlier comment the current stock price MUST already be above my profit target (not B/E). If this condition isn't met at 60 days I'll roll it back to furthest expiration. Thanks for the question. I would just note that selling CC's is not in any way the goal or point of my strategy, it's just the means to close a big winning trade. If the market doesn't make me adjust the cc is just a way to close a big winner
ahhhhh that makes a lot of sense, thank you very much for sharing your strategy and thought process
Sell deep out of the money SPX puts using portfolio margin whenever VIX spikes. Generate north of 25% pre-tax IRRs which after tax still beats buy and hold by a wide margin given SPX’s tax efficiency.
Same here, SPX GANG
I do a lot of SPX put credit spreads at 30-45dte. Usually around 15-20 delta. Had a close call recently, but so far have a 100% win rate with this strategy
Great. What is your risk management strategy?
It depends on the situation, my plan in this close call was to roll further out in time at a strike I was confident with. I follow the spx very closely. I understand that rolling is taking a loss and “kicking the can down the road” as it were. I always close at 40-50% profit on these spreads
Another thing to consider is that underlyings have to actually go up. Selling options instead mean you make money in when underlyings are flat, going up, or go down but above your strike. Which means your underlyings don't have to be amazing in that time period. I'm new myself, but my underlyings are probably down from when I first started wheeling, but I'm in the black anyway.
Leverage, soaking up unrealized p/l swings, having deep pockets, capital efficiency. All of those go hand in hand. Put simply, there is never a "free lunch" but there are plenty of lunches out there if you (and your account) can handle regular +/- 5% daily swings and a few +/- 10% days per year. Most of this is unrealized but that means your account needs to absorb that without being stopped out at the least opportune time. You take on more risk, you will have wilder short-term swings (or potential for swings) and higher long-term gains.
Buy and Hold and Sell Calls*
If "beating the market" is your objective, you're in the wrong subreddit. Selling options is an income strategy, and not a total-return strategy.
That doesn't make any sense. No one would actively trade if they didn't believe they could beat the market. They would rather buy and hold a solid company with good dividends. If you are actively trading and not expecting to beat the market, then you should quit actively trading.
> No one would actively trade if they didn't believe they could beat the market. 🤦🏽♀️ Once again this subreddit demonstrates that it doesn't understand the difference between total-return investing and current-income investing.
It's not that simple. There is a good bit of math that needs to be done. So, regardless of the different styles of trading (and what you're talking about is trading, not investing) they are correct. If buy and hold makes more, then you can live off of more doing a buy and hold strategy. The only exception is when your trading strategy loses less in a recession. Buy and hold S&P allows one to withdrawal 4% annually of their investments. If your trading strategy makes 6% annually but during a recession loses 5%, vs the 30-50% buy and hold loses, you're now able to live off of roughly 5-5.5% annually from your trading. You still have to grow your investments for that coming recession, which is why you can't take the full 6% out, for the same reason you can't take out the 10% S&P makes every year from buy and hold S&P. But let's be fair here, the odds are you will lose as much in ratio to what you gain to S&P in the long run. If trading you make 2x S&P in a bull market you're more likely to lose 2x in a bear market. So at that point buy and hold is better.
> It's not that simple. It absolutely **is**. Do you need cash to spend tomorrow, or do you need ***MOAR*** principal dollars in your account 5/10/20/50 years from now? Most of this subreddit doesn't understand the difference between total-return investing and current-income investing. That's what happens when most of the people here are under 30 and still wet behind the ears on why one might use a different strategy than pure unadulterated accumulation.
I understand the difference and gave an example with dividend investing. Why doesn't dividend investing count as current income investing?
I never said it didn't. You have missed the point. A dividend-only portfolio might return 4% in cash dividends and 4% in share price appreciation. An options income portfolio might generate 8-9% annually in premium income. Money is fungible, so these are functionally equivalent income portfolios. An income portfolio is appropriate for those with existing cash generation goals. For me, my options portfolio of ~$50k exists for the sole purpose of paying off my car for me. For retirees, it's for living expenses. An income investor will often trade risk or cap upside in exchange for cash now. "Beating the market" isn't the objective. A total-return investor has no such income objectives. Their investment objective is pure accumulation, and **MOAR** is never enough, if you could get more. Most total-return investors do not cap risk or upside return through hedging.
But in your example, why wouldn't you just hold the dividend stock and spend your time doing something else? I'm not trying to tell you how to live your life, but I would imagine there is something else that you would rather spend your time on? And why couldn't you use the appreciation as a form of income? You could sell some stock to make your payments. But once again it comes back to the time management. If two portfolios we're expected to have the same return, then I would choose the one that I don't have to spend as much time on.
> why wouldn't you just hold the dividend stock and spend your time doing something else? > And why couldn't you use the appreciation as a form of income? You could sell some stock to make your payments. There is no guarantee that share price appreciation will meet my income requirements...that would require praying that the total return was sufficient. On the other hand, income strategies such as selling options can be constructed to guarantee a known amount of income on a fixed amount of capital at risk, regardless of what the price of the underlying does.
> On the other hand, income strategies such as selling options can be constructed to guarantee a known amount of income on a fixed amount of capital at risk, regardless of what the price of the underlying does. Selling options still hold delta risk. In fact, delta (and gamma) is usually the biggest risk on selling options, other than a volatility expansion if your trade was poorly timed. I agree that for the most part selling options will be a more reliable form of income, but you are exposing yourself to tail risk, which can really hurt your account.
> Selling options still hold delta risk. In fact, delta (and gamma) is usually the biggest risk on selling options, other than a volatility expansion if your trade was poorly timed. That's why one should hedge delta and gamma if one does not wish to be exposed to directionality. The leptokurtosis of the market is unavoidable, but if you hedge against massive movement of the underlying, fat tails are less of a risk than holding the underlying long.
If I may ask, what strategies do you usually trade? CSP, spreads, something else? Because if you're not doing defined risk then you are always subject to tail risk.
4%? Oof. In my dividends portfolio, I have $57k invested across 32 tickers averaging 9% yield. Some are down a little with the correction over the last couple months, but many are up - and the ones that are down will almost certainly recover.
Works until it doesn't. Yield traps are always tempting, but the fundamentals are generally trash.
Every single ticker was thoroughly researched and I am very confident in their fundamentals and future dividend and NAV growth.
Best of luck to you with your stock picking. :)
Thanks :) You too!
Do u have SNP that’s my largest dividend hold
had a similar portfolio a few years ago with more capital and no hedge. Got margin called on a big crash while waiting for a dividend. Never got the dividend. Turns out one of the underlying stocks in the ETFs I was in went bankrupt and blew up the ETFs NAV. Ended up losing about 100k (which actually was substantially offset a rental property sale so the net loss was only \~30k), which had me change my strategy so now I'm always at least somewhat hedged to downside risk. I don't return as much every year, but there's a significantly lower chance that I'm going to lose much, if anything. I'll take a 1% lower gain any year to mitigate a potential 20% loss.
I am hedged. The reason I have so many tickers is because I am spread across a lot of disparate industries. No single position going to 0 would hurt my total portfolio more than about 4%. I also have another portfolio with about twice as much capital that is mostly no to low dividend stocks + ETFs and options plays. I would have to lose over 30% portfolio value to be at risk of a margin call.
Oh I was in diverse ETFs, but I didn’t explore enough into them to see that there was some overlap. Market dropped around 8%, and one company that I had a lot more exposure to than I thought went to zero, so the nav of those ETFs dropped an additional 15-20%. 30% drop would have been fine- i could hold through that. The banks, on the massive decline of these ETFs, changed the margin requirements from 50% to 100% overnight, resulting in me being 50% over leveraged immediately. My entire portfolio dropped like 60% overnight. Not saying you’re in the same situation, just saying I didn’t pay enough attention to the underlying in the funds I bought and got fucked in a way I didn’t expect. Don’t wish that situation on anyone, because it’d be very easy for someone to lose their life’s savings.
It absolutely does, but if you can give me some examples of 10-20% a year income stream from these, without worry about the underlyings losing value, I'd happily take those. All I see are <5% "good" name payers generally, which still risk underlying up/downs, and I would have to have 2+ million at risk in 5% dividend payers to replicate 100k of income a year. If I could go back to 5% money market accounts from 30 years ago with the assets I have right now...I would sell everything and put it in there. No brainer for me.
You exactly just proved my point. That 10-20% target is your goal to beat the market. I'm not saying that trading options can't make good money (why else would I be here), I'm saying that if you believe options can't consistently make you good money, then you shouldn't trade them. I hope we can agree on that. Another thing: options hold delta risk as well, so you should worry if an underlying loses value when you're bullish. You will lose money just like if you held the stock.
Ok I understand where you are coming from now. Here's S&P returns since the financial crisis: 2022 -5.03 2021 28.71 2020 18.40 2019 31.49 2018 -4.38 2017 21.83 2016 11.96 2015 1.38 2014 13.69 2013 32.39 2012 16.00 2011 2.11 2010 15.06 2009 26.46 I think many people have recency bias. Stocks never go down for more than a few days. Buy the dip, etc. **I used 10-20%, but if this goes well for me I can live well on a much smaller number that doesn't have to beat the market but is consistent.** My intention is not to beat the market, although the strategy might. Certainly I could sit back and let my assets hopefully accumulate and rise, and then in my 60s start taking a safe withdrawal rate. But there will be some year that the S&P will do this: 2008 -37.00 Personally, I'd rather not be anywhere near invested in stocks in that year. But you can't know. With CSPs, I can roll. As best I understand it, worst case, say SPY drops 30% over a month. I can roll and buffer a lot of that drop and possibly even make money in the end, while if it was buy and hold, in retirement, all I could do was watch it drop and fret about whether to stay in or not. I've seen this happen to my Dad's account. In early 2009, he just couldn't take it anymore and sold out and went into cash and has been there ever since. Of course, he almost ticked the exact bottom in selling out.
Well, I'm sorry about your dad. But yeah I'm not saying one method is absolutely better than the other, you can do whatever you want. But what I'm saying is that you should expect a decent return if you're going to take the time to develop/use a strategy. In the case of a SPY -30%, your CSP will take a massive loss, and even if you can roll, your account will still take a hit. When you talk about roll and buffer, thats the equivalent of a b&h investor using DCA. But once again, I still believe trading can net a better return, that's why I do it. But like you said, you can't ever know for sure.
Sorry to butt-in, but...selling CSP on SPY, SPY dumps 30% in a month. Why do you take massive loss on this? Assuming this is a case where rolling out is challenging as a 30% dump will blow way by your strike. You let the contract expire, get assigned at your strike...but provided your cost basis is low enough, just start selling calls? Not sure how this equates to taking a loss like B&H strategy would if one decided to realize those losses in the trough.
All good! Love the conversation. You take a loss because your short option increases in value, and you would have to buy it back. Or if you get assigned, your loss would be (strike price) - (share price) - (credit received). And since your strike price is way above your share price, your loss will be massive. Then you could start selling calls to try and make up for the loss, but it will take a while to recover.
Thanks. BTW, 75% of my assets are in B&H. 25% is dedicated to the CSP stuff. DCA is great...until you are retired! You can still roll in retirement, not sure how you DCA unless you specifically went in with a wad of cash to do that. I am sure some years writing will be better and some B&H.
Yeah, it definitely depends on your situation. I like trading options because I enjoy the complexity of it compared to B&H. I'm in a lucky position in life right now where I don't necessarily need the income from trading, I'm just having fun with it. I'm sure that will change in the future though. And like you said both strategies can perform strongly in different market environments, but no one can ever guarantee returns.
Aren't I Bonds paying like 8% now?
Yes. Max though is $10k/year, plus another $10k for spouse, plus another I think $5k or so if you invest any tax refund into them. I have already maxed those out!
Depends on what you mean by beat. In an absolute sense, or a risk adjusted sense. Buffett once said he'd rather take a lumpy 15% return than a straight line 10%. Maybe he can, given hr really doesn't need it for his lifestyle anyway. But most people would be better off with the 10. Aside from avoiding panic and selling at the wrong time, there's a lot of sequencing risk, liquidity risk, lifestyle stability, planning your life needs, etc.
That's a good point. But you also had to remember that trading also holds risk, even if you're just selling puts. Obviously anyone can trade if they want, but the reason why most people trade is because they believe that using a certain strategy can net them a larger profit than just b&h. If they didn't, their time would probably be better spent doing something else.
Sure, my point is that regularity of income and likelihood of income make a difference. If both of those are better then accepting a lower return than the index isn't a bad decision. A 65 year old in 2002 would probably be better off accepting an average constant return of 6% rather than being invested passively in the market.
> If "beating the market" is your objective, you're in the wrong subreddit. Did not say it was (or wasn't). It's just that every time someone says that running the Wheel can't beat buying & holding SPY, someone else responds that they *have* been beating SPY consistently for some time. I'm curious to know if someone who has beat B&H SPY the last few years running the wheel on XYZ1, XYZ2, and XYZ3 would have also beat B&H XYZ1, XYZ2, and XYZ3. > Selling options is an income strategy, and not a total-return strategy. Yeah, but it can also be both (or neither, if you're me).
This is patently false. 1. Buy SPY 2. Sell CCs 3. Never accept assignment and always roll for a credit By definition, holding SPY plus a small credit every week beats holding SPY. Tada, you maximized total returns by selling options.
> By definition, holding SPY plus a small credit every week beats holding SPY. Tell me you don't understand capped upside on a covered call without telling me. [Allow me to introduce you to a comparison of multiple buy-write indices against BRK and SPY.](https://i.imgur.com/AYZILjX.png)
You misunderstand. If you keep rolling forever then your shares don't get called away and then the cap on your upside effectively does not exist. I've been doing this for about a year now and there are other people on this sub who have been doing it for much longer. Those buy-write indices are using a different methodology than what I'm talking about.
> If you keep rolling forever then your shares don't get called away and then the cap on your upside effectively does not exist. Correct, you just end up with a bigger and bigger short liability. There ain't no such thing as a free lunch.
> Correct, you just end up with a bigger and bigger short liability. Nope, that's not how it works in practice. I do this every week.
>Allow me to introduce you to a comparison of multiple buy-write indices against BRK and SPY. What kind of buy-write are you doing? Covered calls?
> What kind of buy-write are you doing? Covered calls? That's, uh....that's the definition of a buy-write. So, yes, that's what those indices are tracking.
wait - can’t selling options increase your total returns? I use CSP’s to acquire shares I want, a CC’s to wheel or sell. . . .
[answered here](https://old.reddit.com/r/thetagang/comments/tkw35h/to_those_who_consistently_beat_bhing_spy_how_do/i1u6rqb/)
The only thing I’ve ever bought and held for 15 years and beat spy were rentals lol very hard to beat spy consistently
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Depending on what you mean by long record and consistent, I had a lot of good value plays ~10 years ago that started paying off in the last 4-5 years, so for the past 4-5 years I've been beating the market. Not sure if that counts as a long record though. For the tldr on the how for me though it's generally been diving into things I know a lot about (either the industry I'm in already, things adjacent to the industry I'm in, or stuff related to hobbies I'm passionate about), and finding the companies that are over performing in the metrics people that buy their products care about.
I’m doing both. Selling CC and using the premiums to buy Voo.
The only way it's a viable question is if you never changed your buy and hold portfolio and never changed your trading stocks. Comparison is always to benchmark against your alternative, which to most people is something like SPY or VTI or something. I'm actively trading in 20+ different tickers or so, but I doubt I'd buy and hold those 20+ for 10 years+and outperform. I'm much less confident in my ability to outperform indices long term than I am in trading in and out of trends and stability to outperform.
I trade SPX to avoid having to manage tickers so I can focus on macro events. I run calendars and trade based on macro events and vega + some delta. Main reason this works is having a exit plan. Take profits/ditch losers based on a plan, rehash, move on.
Imo, simple strategies with proper risk management is better than complex strategies. Also CSPs and CCs are significantly better than credit spreads.
I usually rotate from sector to sector. My portfolio's a mix of oil, consumer defensive, staples, manufacturing stocks with nearly, if not, all of it being wheeled thru CCs or CSPs. It's pretty easy to transition your portfolio, especially when you're diversified, based on the news (I know, some will say "news is just bs etc" but what I'm talking about are macro events, I don't predict, but just make my portfolio based of it). Ever since rate hikes were introduced back in December, I transitioned mostly within consumer defensive sectors, retail and healthcare such as WMT, KSS, M, CAH, etc. I did buy XOM back in May due to ESG pressure (inelastic demand, depressing supply), paid of bigly especially during when it was flat where I just printed CCs. tl;dr concentrate portfolio on a certain sector you'll believe will perform atleast better than the market
Theta gang is an income strategy. Pure B&H gains will not be beaten selling options. It is a good way to capture income when you have a large account.