My Strategy Summary

Trade SPX, RUT, NDX

Strategy of Selling Credit Options Spreads far out of the money using some technical analysis.

Summary

• A strategy to profit on Theta (time decay) and volatility
• Rules may be changed depending on market trend and volatility
• Sell calls or puts or Spreads independently
• Sell more puts depending on market trends (I use a weekly chart to determine overall market trend)
• In 2013, maxed out on the put side to sell twice as many puts as calls
• Sell call spreads with greater risks as market does not crash up
• The variable ratio of put to call contract sizes allows the strategy to adapt to market trend
• In 2013, I should have stayed light on call side and to sell calls with shorter period of time (in late Nov I was heavy on Call side and suffered some pain.  

Trading Vehicles

• Traded SPX RUT and NDX options mainly, sometimes I sell puts in stocks
• I trade QQQ, IWM, and SPY and do not worry about taxes.
• I like trading the SPX best - No problems with SPX option liquidity
• I go to the RUT and NDX when I  need other positions to put on. Long (or Short) deltas are are essentially the same in all three when I try to “balance the portfolio”.  
• I sell puts in stocks

Sell far out-of-the-money, high probability options depending on market volatility

• In 2011 & 2012 when volatility was higher (VIX >= 15), sold puts with 2 SD (5% ITM Probability)
• In 2013 when volatility was low (VIX around 11 to 13), sold puts with 1 SD (15% ITM Probability) to 1.5 SD (8% ITM Probability)
• Sell calls with 10% ITM probability

Option Cycle Selection

• 30 days to expiration for calls in general for 2013
• 56 days to expiration for calls if price can be projected and good premium can be obtained from far above the projected price
• Use trend analysis including 2 SD Bollinger bands, resistance, and FIB retracements and Fractals
• 56 days to expiration for puts spreads

Trade Entries Triggers

• Sell calls spreads for credit when market rises
• Sell puts spreads for credit when market falls
• Trades are entered in multiple days around predetermined option expiration days
• On a Bollinger Band Touch or a Fractal Breakout (reversal soon) when the market is still rising - I sell call spreads and try to “load up” allowing my portfolio to go un-balanced
• On a Bollinger Band Touch or a Fractal Breakout (reversal soon) when the market is still falling - I sell Put spreads and try to “load up” allowing my portfolio to go un-balanced
• Because I am using Defined Risk Trades - I do not worry about my portfolio going un-balanced

Trade Exits

• Actively take profits and risks off the table
• For options (puts) starting around 56 DTE
• Close positions if profits reach 50% within 1st 16 days
• Leave positions on after the 40 DTE neighborhood if they are not closed yet so that they can expire worthless
• For options (calls) starting around 30 days
• Close positions if profits reach 20% to 30% or even better 50% in a few days
• If price continues to rise with 1 week left for call options, then take the calls away and move them to next week while keeping puts on

Trade Adjustments

• Close out losing trades that have a DTE of less than 14
• Try to make up the loss either through selling more put or call contracts

Money and Risk Management

• Use Defined Risk Trades
• Do not over-manage positions

Psychology and Mindset

• Control the emotions of both fear and greed
• Trust statistics and high probability (Use 2 SD for 95% odds of success)
• Use structured method and manage positions well
• Require a high level of confidence and repeatable successes for a long time.

Team Members

• None