I am hoping to stimulate a discussion on some premium selling strategies with this post. I have looked around SI and I don't see a lot of active options premium discussions so hopefully there are still a few interested people here.
I have been following a wheel type strategy for a while on a few stocks, like AAPL. Big, good names. etc. Highly liquid options. What I do is sell naked weekly puts OTM and if the stock is put to me I sell weekly ITM calls until its called away. My parameters are such that if the stock is in a daily uptrend I will sell 20Delta puts every week, and if put to me I will sell 80/90Delta calls. It has worked nicely but I have not tracked it specifically nor have I graphed returns, calculated sharp ratios, etc. Also, if the stock is in a daily downtrend, like now, I will sell 10Delta puts or 90Delta calls. Weekly. I use a tuned MACD to determine up or downtrend.
I don't care if I own the stock or not. All I care about is the weekly extrinsic value I can write. Which really isn't that big, but it adds up. And using this strategy, my main impetus is to collect that same premium every week.
So, the downside is that you get a major correction, the stock is put to you and you take significant losses. Part of the game I guess. I figure this strategy can avoid half of the losses of a major correction, but probably not more than that unless the correction is drawn out over a long time. Not likely.
Does anyone follow this wheel type strategy? Any comments?
I have been wondering about a couple of points.
First, why not sell strangles instead of naked puts. You can only be assigned one way at expiration so if you end up long or short the underlying you can follow the same strategy whether you end up long or short, you do use more buying power, but you also double your weekly income. You will be dealing with assignment twice as often. I have not not done this, but I am considering it. A truly directionless trader really shouldn't care one way or the other.
Second point, I have been thinking about using daily moving averages to enhance the naked put strategy. The 20 day ema seems to have a good amount of usefulness and I have been wondering about using it to determine put sales. Above the moving average, sell the 20Delta put, below the moving average stop out and pull back until its back above.
Downside, is you do not get the weekly extrinsic premium every week. Upside, much smaller losses in the underlying.
Anyway, if you've gotten this far thanks for taking the time. I'm open to comments. |
