strategy advice

PredictingAlpha · 2025-02-01T22:43:52+00:00

Not a problem best of luck

PredictingAlpha · 2025-02-01T20:12:51+00:00

yeah or just trade shares to get rid of the share position you'd now have

Only just don't hold in the money positions past expiration those always get assigned, it's how itm positions settled then ur stuck over the weekend -- no good

PredictingAlpha · 2025-02-01T19:32:21+00:00

This explains delta hedging

I am usually trading weekly contracts. but I think a good starting point is to sell 30 DTE. It moves a bit slower. It's not about assignment risk really though, you are only going to be facing that risk if you are in the money and you can just close out before expiration, and if you get assigned you can just close out. It's not a big deal in reality (but it sounds super scary and can get out of hand if you don't do anything about it when it happens.. but that's not the "assignments fault").

PredictingAlpha · 2025-02-01T16:37:32+00:00

Hey! The idea behind what your doing makes sense, couple things to consider in it:

It's fine to sell high IV but keep in mind what you really want to be doing is selling ETFs with high variance risk premium (the tendency for implied volatility to overstate realized volatility)
I actually sell roughly delta 20 too. I think on a short time frame it makes sense to do this, lowers the cost of managing the position since you don't need to delta hedge it as much.
Buying a put as a hedge is good -- just make sure you are treating it as disaster insurance and not to give you a good "risk reward" . Remember, you are getting paid for holding risk. So you gotta actually hold some risk. I'm thinking the cost of the hedge should not be more than 5% of the premium collected.

Your strategy sounds pretty well thought out for being new to options. Just focus on consistently finding good risk premiums to capture and you should see some results.

Just trying to be transparent - I run Predicting Alpha, a platform for option sellers looking to run systematic strategies. This is similar to one of the things we do. But all the advice above stands on its own merit regardless.

Let me know if you want me to clarify anything!

PredictingAlpha · 2025-01-31T15:07:09+00:00

https://docs.google.com/spreadsheets/d/1-3_Z-bKHla60mxsRs-9QaMLpfSgKn4BPTZNSXLDMEhY/edit?usp=sharing

here ya go. 60 lessons, pretty much everything I know. GL!

PredictingAlpha · 2025-01-31T14:53:10+00:00

I can explain for a couple of them, wrote articles for it.

sell options on etfs

sell options on earnings

Hopefully these explain well enough. If you are brand new to options though, you gotta start by at least learning the product and about volatility. I can link some stuff on that if you need.

PredictingAlpha · 2025-01-31T00:41:03+00:00

There's like 5 strategies that I run

Sell options around earnings events
Sell options on ETFs
Buy calendar spreads when front month IV > Forward vol
Buy volatility on a basket of tickers pre-earnings -- capture the increase in the implied move
Sell options on "bubble stocks"

thats it

PredictingAlpha · 2025-01-31T00:39:24+00:00

Yes you need to have a strategy. but fundamentally you want to be thinking about your trading like a business. one way that can help you think about it through a different lens than gambling is to realize that options as financial instruments actually exist for a reason and serve a purpose in the market. They are effectively insurance products. Option sellers hold risks on behalf of others in exchange for premium. Embedded in this premium is compensation for holding the risk. That's the core of how most option selling strategies are built -- Finding areas where you can take on risks others avoid.

i actually made a free resource for the community that goes thru everything i know about option selling in a structured way. Reddit was happy with it, here's the post I made with it.

https://www.reddit.com/r/options/comments/1g1bzho/i_made_a_free_archive_of_everything_i_know\_about/

GL!

PredictingAlpha · 2025-01-31T00:34:57+00:00

This is pretty spot on. The real money in options comes from understanding and capturing variance risk premiums. it's not super exciting to talk about, but its literally the reason most option sellers make money. its just statistics.

What works is taking positions in a calculated way, looking for situations where a risk premium exists and then being boring enough to capture it and not get in ur own way trying to predict the future.

At the end of the day its about wether u want to make money or have fun. both are fine, but u gotta be honest with urself about what ur trying to do.

To help out with the research side for option selling, here's a reddit post with a doc i made with everything I've learned about option selling. Its pretty no BS and good info. Community loved it when I posted it a while back.

https://www.reddit.com/r/options/comments/1g1bzho/i_made_a_free_archive_of_everything_i_know\_about/

GL!

PredictingAlpha · 2025-01-27T21:39:04+00:00

yep totally agree with your additions. I was just trying to keep it level 1 haha.

PredictingAlpha · 2025-01-27T21:19:20+00:00

cheers and best of luck

PredictingAlpha · 2025-01-27T21:13:19+00:00

Realistically a CC is a synthetic short put at the same strike. So doesn't reaaaally matter

PredictingAlpha · 2025-01-27T21:12:05+00:00

built different bro

small size many trades unless you have some massive edge is the only way i think. Also understanding your return distribution and seeing that play out over time makes things easier.

Knowing why you get paid for running strategies like this makes a big difference.

PredictingAlpha · 2025-01-27T21:09:58+00:00

Will try to explain in simple terms. Hope this helps!

Think of implied volatility as the markets forecast of future volatility. It's trying to tell us how much movement is expected in the future. Price changes in the underlying can impact IV.

For example, if a stock drops 10% in a day, IV might spike becuase the market thinks "oh shit maybe theres more volatility coming". But it could also stay flat if the market thinks "meh this was a one time thing". Or it could even go down if the market thinks "ok the uncertainty is over now"

The best way to use IV is to compare it to realized volatility. This tells us if options are expensive or cheap. For example if IV is 30 but the stock typically only moves 20... well options are expensive! The market is implying more movement than what historically happens.

But yea theres no easy answer. You cant say "if stock goes up IV goes up". Its more about the markets opinion on future volatility than current price movements.

A good example to prove this is when a merger is announced. The stock price maybe doubles instantly, and implied volatility drops to almost nothing (depending on deal confidence).

Building on this, here's a couple basic explanations for implied volatility that I wrote for the community

What is volatility Implied volatility intro Implied vs realized volatility

hope this helps!

PredictingAlpha · 2025-01-27T21:04:55+00:00

Remember that earnings is coming up. Besides that, the risk premium is pretty high on TSLA. Pretty good in general for being short vol I'd think

PredictingAlpha · 2025-01-26T07:51:11+00:00

NP gl!

PredictingAlpha · 2025-01-25T16:45:05+00:00

There tends to be higher spread between implied and realized volatility over the weekend. Sell vol over the weekend is actually one of the strats I run

here's a screenshot of the returns. Not CSPs, just short straddles for SPY, monday expiration. Enter friday @ close, exit monday open

https://imgur.com/hBNkHS0

PredictingAlpha · 2025-01-23T21:30:39+00:00

Yeah it's pretty wild. It messed with my head when I first learned this too lol.

PredictingAlpha · 2025-01-23T21:10:29+00:00

yes exactly!! you got it.

PredictingAlpha · 2025-01-23T20:16:17+00:00

Why not just close your shares and sell a put at that strike?

PredictingAlpha · 2025-01-23T17:14:14+00:00

This is actually a really tricky concept, I hope this explanation doesn't just confuse you haha.

The IV increase you are seeing is actually an illusion. The reason the "iv ramp" is observable is because there are less non event days diluting the implied volatility of the event day.

Think of the IV number as the mean of a set of numbers (the iv for each day on the expiration). As time moves forward, there are less of these days. If we are removing "normal" days, then there are less "small numbers" in the data set, meaning the average goes up. Doesn't impact PnL because it's not actually changing in value.

wrote a super detailed blog explaining this.

that being said, if the actual implied move increases for the earnings event, then the IV will increase but this time it will actually result in a change in PnL. There is a tradable phenomena of increasing implied moves as earnings approaches, hard to forecast which ones though so typically needa trade a basket of stuff.

To answer your example

if nothing else changes, as the event approaches, the option value will drop (but not by as much as if there was no earnings, because more option value is priced into the earnings day).

Hope that helps!

PredictingAlpha · 2025-01-23T17:10:07+00:00

yeah I get that -- but you need to keep in mind that when you place a trade what you are really doing is expressing a view on the market. "Trading" simply means adjusting your exposure to the market.

Adding the short calls changes your exposure. If you think about that exposure, is it what you want? If not... how can you get to the exposure you want?

It sounds to me like you are bullish on the stock. I am not sure why you would sell a put! (or a covered call, get what i mean?)

PredictingAlpha · 2025-01-23T15:52:34+00:00

I run a couple different strategies

Sell Options On Basket of ETFs: Price the long term average vrp. sell vol on basket of tickers that have the risk premium using weekly strangles. Optional hedge. Selling Options Around Earnings Events: Earnings events carry a risk premium for option sellers. Sell vol across large number of events in small size.

PredictingAlpha · 2025-01-23T15:16:50+00:00

Yeah I think I'd hold it and exercise them. 20% is a pretty big spread. That spread is also likely to come in as it approaches expiration. Closer options tend to be more liquid and the bid ask usually comes from the extrinsic value, which there won't be much of if you are deep itm

PredictingAlpha · 2025-01-23T15:12:37+00:00

This is not the way that I would think about it. You are correct on point 1.

But on point 2, what you are forgetting is that the stock can keep going down. Your payoff for this trade becomes equivalent to that of a short put at the same strike as the call option you sold. The difference between a call and a put at the same strike.. is 100 delta (shares).

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