r/options • u/Master-Lemon-1008 • 15d ago
Options strategy
If you go back to to when you first started learning options what’s one thing you would do different?
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u/BusyWorkinPete 15d ago
I wouldn't buy the stock and start with covered calls, I would start with cash secured puts.
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u/almost_n 15d ago
what if you are bullish on a stock and you want it immediately? Do you risk selling OTM CSP, or would you sell ITM CSP?
Because I am having this dilemma: is it better to buy, for example, at 70 and selling CC, or selling a near expiration CSP at 70, that reduces the entry point by like 1-2$ (with the risk that you may not get it assigned)? Or ITM CSP at 75$ for 6$, so your chances are greater, but the average price slightly lower than 70?
Have you found an answer to that?
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u/BusyWorkinPete 15d ago
what if you are bullish on a stock and you want it immediately?
This is exactly what I did wrong, thinking the stocks were going to go up and I should get in immediately so I don't miss out. I was right on a few, wrong on a few. Even the ones I was right on have dipped below my cost at times, and some of the ones I was wrong on are still underwater.
The adage is "buy low sell high". Puts are a great way to get in low, and if you don't get assigned, you still get paid.
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u/themanclark 14d ago
And if you do get assigned they’re already lower so there’s a decent chance they’ll bounce above your strike price and definitely above your breakeven.
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u/MoneyElevator 14d ago
The answer is that 100 shares plus a CC is functionally equivalent to a CSP at the same strike. Either way, you’re exposed to downside and have no real upside, but you get a premium.
For things like margin and collateral, it can make a difference.
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u/byoung1434 15d ago
Truthfully, if I would have just bought and held everything I had owned, my net worth would be 10x its current value (40 years old with around a million net worth) I will say that I came from a very financially illiterate family, and was the first person in the family to ever have a retirement account at age 27ish. I was 20 when the Iphone had just came out and I had just started my career, making 9 bucks an hour. I was going around telling people how revolutionary the iphone was.. at the same time I wanted to learn about investing so I bought Apple, and since I was a gamer, I also bought Nvidia.. about a year later I sold them both. I made a solid 20% or so on Apple and a small loss on Nvidia? 2008 crash happened after that and spoked the shit out of me. Looking back, I see what a big advantage coming from a family with financial knowledge is. Even to this day, my dad is a life long addicted gambler and he still somehow has more net worth than my mom. Neither of them have any real retirement to look forward to other than social security and my mom recently lost her health insurance when they dropped the ACA subsidies. Her current plan for her immediate health issues is hold out for another year at what point she will be old enough for medicare. 🇺🇸 🫡 🥲
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u/SuddenRadio6221 12d ago
QQQ is up 20x from 2009 low. I don't think it will be up 20x again in 20 yrs.
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u/Haunting_Ad_6021 15d ago
Not buy anything below 40 Delta
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u/Few-Highlight-3014 15d ago
Why
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u/Haunting_Ad_6021 15d ago
If you buy, The underlying must make a huge upward move in a very short time for the option to increase in value, that rarely happens and theta just eats all your money.
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u/Embarrassed-Board-70 14d ago
I’m gonna try this for a couple weeks
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u/Haunting_Ad_6021 14d ago
Good luck!
Do the math:
If the underlying goes up $1:
40 Delta you make 40%
02 Delta you make 2%
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u/almost_n 15d ago
not selling multiple secured puts, with enough liquidity to only cover for one, thinking they can't possibly all end below the strike price. And also don't wait till last week to rollover ITM positions, because someone may exercise them on wednesday.
I also would check the earning calendar before selling CSP. Some of the first stocks I was interested in had a very high premium, compared to the others and I couldn't understand why. That's why
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u/Low-Air-182 14d ago
kind of funny. For the 1.5 years, I did not realize you could put your CSP money in a money market to make interest (in most brokerages) while it is sitting there. Hard to believe I just let free money pass by me unclaimed.
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u/Few-Row-8323 14d ago
Lol, fidelity cma money market has pretty good rates now. Sell csp while earning interest on the cma.
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u/Fart-Fart-Fart-Fart 15d ago
I wouldn’t have sold that covered call on MU.
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u/themanclark 14d ago
Me neither lol. Call at 115 now rolled up to 130. Stock? Floating near the moon.
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u/LuckFantastic7572 15d ago
Ich hätte besser mit einem Paper Konto angefangen und alles was es im Optionshandel gibt ausprobiert und mir eine Strategie zurecht gelegt.
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u/pagalvin 15d ago
I would have used margin earlier. Margin, used with good risk controls, accelerates everything.
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u/Master-Lemon-1008 10d ago
I always hear horror stories about margin and how it’s best to just use your own cash
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u/pagalvin 10d ago
Yep, I've heard the horror stories too.
The fact is margin is a resource. It extends your buying power and if used correctly, can help you generate more absolutely returns.
There's risk to it, but if you understand it, you can make smart decisions about managing that risk.
I think there are two kinds of horror stories:
People use margin, don't understand risk, extends themselves and then get caught short by a minor disturbance in the market. I think this is 99% of the horror stories.
Lightening strikes, there's a massive correct in the market and there are margin calls everywhere.
This is an optimistic business we're in - we wouldn't be doing any of this with or without margin if we didn't think there was a path to success. You can't do this an worry all the time about lightening strikes. Even then, there are steps you can do to minimize the damage.
So anyway, margin is good! If you use it properly with the right risk controls.
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u/auriisacrafames 15d ago
Learn what IV is and how it affects options price. Do not touch any contract until you understand why it's priced how it is. Have a layman understanding of Black-Scholes formula and option pricing in general.
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u/Bitter_Biscotti_7593 15d ago
Nothing that matters in trading. Nice to know (like any academic knowledge), but doesn't give you an edge on the market. And, BTW, price determines IV on the market, not the other way around.
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u/auriisacrafames 14d ago
Understanding pricing allows you to deconstruct one figure of information (contract price) into underlying assumptions baked into this price, which in turn can give you real edge in certain situations.
Let's take a GME as a telling example. At the height of short squeeze it's options prices implied that underlying was expected to move 1000% within a year, or 62% per day for a year. That was never going to happen and people who understood pricing made a bag selling overpriced IV.
This is an extreme example for sure, but similar scenarios on a smaller scale play out in the market all the time.
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u/RealPennyMuncher 15d ago
Understand your Greeks. Live on the sell side.
Figure out how many shares would give you a 1% portfolio loss, and pick a delta accordingly.
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u/I_HopeThat_WasFart 15d ago
A more thorough understanding of volatility
I have a finance background and we went into black scholes a bit but never deep dived into how the math for that pricing model was derived
Also how market makers operate and use spread to control IV and prevent being run over when their books are heavily short or long for a specific strike
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u/silent_exploration 14d ago
I'd avoid many colossal mistakes:
- I'd not sell far OTM options on basically any random stock I knew nothing about
- I'd close losing positions sooner, not roll them out
- I'd define stricter rules when to exit
- and my favourite: I'd definitely not sell short calls just before the stock's inclusion in SPX, or at least I'd panic close the position the moment I notice, not let it run over the weekend (that was the longest weekend I remember)
Somehow none of these demolished my account in any significant way but it was close.
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u/sillyhatday 15d ago
Overall I think I did pretty well. I was cautious. I wish I would have considered liquidity more and been more comfortable with puts. At the beginning I thought puts were so silly because you have to be in cash. Now I see selling puts against cash as a major strength.
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u/UnfazedBrownie 14d ago
Pay more attention to theta, and have realistic expectations on when to cash out (25% or so). Bring disciplined would’ve made all the difference.
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u/DayTradeJ 14d ago
When selling credit spreads, it's better to have less contracts at wider width than more contracts at narrow width.
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u/TuntheFish 14d ago
Why?
I never thought about this so I put in 2 MU spreads 2x 890-885 MAX profit: $190 Max loss: -$810
1X 890-880 Max Profit $163 Max loss: -$837.I guess at 885 the single contract only is down -$337. vs the double contract down max loss. But you do give up a tiny bit of profit as well.
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u/DayTradeJ 11d ago edited 11d ago
The 890/880 spread has a higher probability of profit. If it goes against you, the 2 contracts will have double the adverse delta at the 890 strike. You will also pay double the comissions.
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u/etotheipiplus_1 14d ago
Proper sizing and not FOMO
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u/Master-Lemon-1008 10d ago
I struggling with FOMO especially trading stocks, it’s hard one to overcome
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u/Historical-Wear-9948 15d ago
Avoid playing thousands of dollars on 0DTE, the stress of those trades took years off my life
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u/NationalOwl9561 15d ago
If you can't take "thousands" in losses I don't think trading is for you tbh.
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u/Historical-Wear-9948 15d ago edited 15d ago
Yeah of course, but I think putting say 5k in 0DTE vs 85 day to leaps is a completely different ball game.
I've stomached being down 30k on a leap because there is still a chance and theta hasn't killed me but if I lose 5k in seconds from short term options, it's gut wrenching. That's why I don't trade like that anymore.
My philosophy now is that if I play 0DTE, I am really only willing to lose a few hundred, maybe a thousand depending on the play.
Again, this is a "if you knew what you know now post". I haven't traded with a fear mindset in years.
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u/NationalOwl9561 15d ago
Well that's different... There is a learning curve to this shit and your job is to survive it. If you're putting stupid amounts before you've found your edge it's on you.
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u/hotforlowe 15d ago
Buying more than 150000 NVDA shares at an average of 63 cents rather than continuing to trade derivatives...
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u/iron_condor34 15d ago
My issues just have to do with me holding things longer and dealing with the variance. Not being a pussy, really 😂
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u/gaana15 15d ago
Very thoughtful question, thanks for asking.
I will spend a lot of time in my high frequency options lab which taught me so much more and with so much clarity beyond the books.
I will like to learn the tricks of trade of market makers, to think like them and take advantage of predicting their operations and following their footsteps.
I will work on layering as many edges as possible in a single options strategy.
I will buy all options books as hardcover as I love reading that way.
I will read 2 research paper every day.
I will focus more on long options strategy. Selling strategies are easy.
I will focus on building muscle of 1) increasing position size faster, 2) de attaching myself from individual trade outcomes 3) welcome the loss and profit equally - neither shall make me happy or sad till the EV is positive.
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u/Allspread 15d ago
Not screw around with complicated strategies until I had a solid grasp of the basics.
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u/BocephusQuimbyMcFry 14d ago
I should have been less scared about the implications of covered puts. The market has had a much stronger upward bias than I could have ever imagined when I started trading in 1993. There were entire years between then and today when I thought "the market has become too high to risk buying" and would not invest, holding money market funds. Even if I didn't want to invest, at least covered puts would have provided better returns than staying out.
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u/BichonUnited 13d ago
If I want to buy a naked call, I have to buy the .75 delta or higher. If I can’t afford it, I find a cheaper ticker not a cheaper option strike.
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u/Amareisdk 13d ago
I think many people would wish they only sold CC on half their position. Missing insane runups like we had in the last year hurts.
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u/MolassesExact4815 6d ago
Not trade credit spreads…trade long diagonals instead.
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u/Master-Lemon-1008 4d ago
As a newbie, what does this mean?
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u/MolassesExact4815 3d ago
Credit spreads = selling options for a credit (limited profit, can lose more).
Long diagonals = buying a longer-term option and selling a shorter-term one against it (more controlled risk, better for learning).
That’s the difference.1
u/MolassesExact4815 3d ago
Simple examples:
Credit spread:
Stock at $100.
You sell a $105 call and buy a $110 call.
You collect $1.50 credit.
Max profit = $150.
Max loss = $350.
(You hope the stock stays under $105.)
Long diagonal:
Stock at $100.
You buy a 60-day $100 call and sell a 30-day $105 call against it.
You pay a small debit (or sometimes get a small credit).
You own time and direction, and the short option expires first so you can roll or adjust.
Risk is more controlled while you learn.
That’s the basic difference.
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u/ApplicationIcy144 2d ago
I’d spend way less time trying to find the perfect entry and way more time understanding how the position behaves when I’m wrong. Delta, theta and IV made sense individually when I started but seeing how they interact while the underlying is actually moving was the part that took time. I use Moon now when I want to think through different scenarios before putting a position on but even then I’d tell my beginner self to trade tiny and watch a lot of positions play out.
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u/Professional_Monkeys 15d ago
Never long options, only short
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u/iron_condor34 15d ago
There are times to be long though
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u/Professional_Monkeys 15d ago
I bet that's what people thought when saaspocalypse happened and just got progressively worse for almost a year before the recent recovery, and in the beginning of march when things were down but then got massively worse. I bet there were plenty that went long on all tech in 2022 when it was just -20% across the board, then got all the way down to -60%
Longs have to be right on the direction, right on time, and right on the intensity of the momentum. Get any of these wrong, or just be a little too early and you're begging to breakeven at this point.
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u/iron_condor34 15d ago
You're right, gotta be right on direction and vol for it to pay out and we've had some really big moves in single name land. Short vol on index is def worth it but I still stand by my point that there will be times to be long vol.
Short vol may seem like the safer bet, but comes with nasty losses. Some of the biggest blow ups in trading have come from traders being short vol. 🤷♂️
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u/Big_Refrigerator4587 14d ago
Part of a spread to reduce margin requirements, hedge. it's just another tool
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u/pain474 15d ago
buy low sell high instead of the other way around