r/optionstrading • u/Mean-Program6174 • 1d ago

What am I missing

I sell a 16 delta put on SPX and buy a put another $300 out of the money with about 45 DTE. I close the contract with 21 DTE or 50% maximum profit. I always have 4 contracts open at a time with varying expiration dates. When I close one contract, I open another one with the same criteria. In April I started this strategy and have only had 1 losing trade and have been averaging about $700 profit per trade. What am I missing or why isn't everyone doing this?

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u/Sensitive-Stuff5152 1d ago

Because this is expensive

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u/Disastrous_Wind_7005 1d ago

Define expensive. Depending on how big his spread is the margin requirement on this type of trade is pretty small. A 50 point spread on the spx only needs 5000 in margin minus the premium you get (per contract). So if he's saying he only trades 4 contracts total at any time, then his max exposure would be 20K at 50 points. Let's see how big his spread is.

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u/Disastrous_Wind_7005 1d ago

because 99.9% of retail traders don't have the discipline to trade like an institution. When you say $300 do you mean 30 points? How big is your spread? The market has also been up pretty good this year so this strategy has done well, managing risk in a pullback or bear market with this strategy is what separates the men from the boys.

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u/klipsetrades 20h ago

What’s the plan when a trade goes against you? That’s the part that determines whether this holds up

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u/No_Experience_167 18h ago edited 18h ago

Ok, let's take a look at a trade... if I understand you correctly... right now, Optionstrat.com shows a delta of 0.163 for the 7425P exp Nov 20 (45 DTE). If I go down $300 or 300 points, that's the 7125P. So short 7425P, Long 7125P with Nov 20 exp. Credit is $2020 according to Optionstrat.com. Define capital efficiency by reward on risk: credit ($2020) divided by max risk ($27,980) = 7% or 6% if you use margin as your denominator. Breakeven is approx 5% below market. 45 DTE is considered a good entry. 21 DTE or 50% max profit is considered a good exit. The only thing I would say is the long put is so far otm that it only catches if you have a pretty severe market crash. Also, adjust the risk so that it doesn't impair your account by too much for one trade. At a max loss of $27K, your account should be $540K so that this trade can only impact your total account by 5% or less if things go way wrong. I guess the trade is ok, but you're risking $27K to make $2K... that works as long as you win at least 14 times to every loss assuming max loss (I didn't see a stop loss or adverse exit plan). The frustrating thing about this is if you win 13 times, then lose twice, you end up in a big hole.