Selling Premium on ES

[tnatrader]

Saw a post on reddit where the OP wanted to know how much returns were reasonable for an option selling portfolio if the goal is current income. I thought I was already near the ceiling of acceptable risk by suggesting 1-2%/month, but I got plenty of comments saying that these returns were low and even 2%/month is way too low for expected returns.

Remember this is for somebody who wanted monthly income! Truly this bull market has warped many investors' sense of appropriate long run returns, even for risk averse portfolios. As for me, I keep on grinding as I am pulling about 2k a month out of this portfolio as I got expenses piling up due to life events.

I am up about $7500 for Sep and Oct combined. 10k before end of Oct is probably out of the picture, but not bad relative to a mostly rangebound performance for my benchmark (50/50 global stocks and bonds). Portfolio is in blue and benchmark is in green. Sharpe seems high, but this is true of all option selling strats. Check back to see where the sharpe is after a nasty bear market.

 

[traider]

Saw a post on reddit where the OP wanted to know how much returns were reasonable for an option selling portfolio if the goal is current income. I thought I was already near the ceiling of acceptable risk by suggesting 1-2%/month, but I got plenty of comments saying that these returns were low and even 2%/month is way too low for expected returns.

Remember this is for somebody who wanted monthly income! Truly this bull market has warped many investors' sense of appropriate long run returns, even for risk averse portfolios. As for me, I keep on grinding as I am pulling about 2k a month out of this portfolio as I got expenses piling up due to life events.

I am up about $7500 for Sep and Oct combined. 10k before end of Oct is probably out of the picture, but not bad relative to a mostly rangebound performance for my benchmark (50/50 global stocks and bonds). Portfolio is in blue and benchmark is in green. Sharpe seems high, but this is true of all option selling strats. Check back to see where the sharpe is after a nasty bear market.

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Simple option put writing underperforms buy and hold SPY over the long term. Check out PUTW. Income is just an illusion.

 

[tnatrader]

Simple option put writing underperforms buy and hold SPY over the long term. Check out PUTW. Income is just an illusion.

I absolutely agree with you that income is an illusion. What we really mean when we say income is a portfolio exhibiting low enough volatility so that we can pull monthly income without worrying about exacerbating a drawdown.

With that being said, I'm not really concerned with beating SPY as my current goal is to make 10-20% with minimal drawdowns. I am in the early process of buying some real estate and thus cannot have too much volatility with my trading capital.

 

[traider]

I absolutely agree with you that income is an illusion. What we really mean when we say income is a portfolio exhibiting low enough volatility so that we can pull monthly income without worrying about exacerbating a drawdown.

With that being said, I'm not really concerned with beating SPY as my current goal is to make 10-20% with minimal drawdowns. I am in the early process of buying some real estate and thus cannot have too much volatility with my trading capital.

Look at the drawdown of PUTW, you have no protection in a market crash. This strategy doesn't minimize drawdowns.

 

[tnatrader]

Look at the drawdown of PUTW, you have no protection in a market crash. This strategy doesn't minimize drawdowns.

The drawdown protection comes from my conservative position sizing. This is probably true of all strategies--it's all about the position sizing.

 

[tnatrader]

Not much to update when the markets are calm like this. Just keep rolling over the short puts. Thesis remains the same that we rally into year end and probably into January. Nothing is more bullish than all time highs. Don't need a cfa to figure that out.

 

[tnatrader]

Going good. Paying off my rentals and converting it into a heloc for more flexibility. Gonna do what I discussed a few pages back since I realized that this type of strategy doesn't require all this margin most of the time. It will be a more efficient use of capital all around.

 

[ZBZB]

Simple option put writing underperforms buy and hold SPY over the long term. Check out PUTW. Income is just an illusion.

Do both on margin if you do not want to be long spy on margin.

 

[tnatrader]

We are undergoing the typical end of year rally. I get it, inflation is out of control plus the usual geopolitical tensions/covid 6th wave or whatever, but that's the wall of worry talking. With zirp, the opportunity cost of being out of risk assets is just too high. All the big boys know this. Until the Fed reverses itself or there is a risk of actual dislocation in the real economy, we will keep melting up. Of course a bigger part of gains is due to inflation, but relative to negative real rates, what else are you gonna do?

 

[tnatrader]

Not a good look that I say all that in my previous post and then we have the worst Black Friday for the markets for as long as I can remember. Still, imo the path of least resistance is up rather than down. Just thank my lucky stars that I dialed back to 1 contract from 3 earlier this week. B/E is 4710 and probably will sell covered calls a few weeks out. If we drop another 5-10% from here, I will be looking to add.