One of my personal income option strategies (THREAD)

A strategy I have been working on and perfecting over the last year has been a 0 DTE option strangles. That’s selling both calls and puts simultaneously, same day expiration. No stock purchases.

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I’m gonna try not to give away every single detail in a thread but much more than enough to get you guys thinking critically on how to design your own similar strategies and see the benefits of the decisions I make during my setup.

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When you trade a strangle you are betting the stock won’t go too far up or won’t go too far down. If it stays where it is you make money on both sides. If it goes against you too far to either side you have the opposite side trade to help offset your losses.

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Now let’s get to the setup. First I had to choose the instrument to short my puts and calls on. I chose an instrument that is highly liquid, giving me less slippage and better spreads. This is part of my risk management and very important.

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The instrument chosen has to offer good options premium since we are selling puts and calls here for income and we want big returns on our bets. That comes with higher asking prices in premiums.

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Since options/risk management is my strong point I’m not looking to hedge using spreads. I’m comfortable with larger risk because I feel my management can negate/offset much of the potential drawdowns.

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So I’m straight selling naked calls and naked puts which is the riskiest maneuver in options, but also can be the most rewarding. So make sure you don’t just go and try this without some time in and experience. Income strategies are never easy it’s why most don’t make it.

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Next I want to eliminate gap risk. Stocks close each day which means each morning you run gap risk. And right now those gaps can be 1000pt in things like the $DOW. Stops don’t help on gaps if it gaps below your stop.

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To combat this I chose instrument that is cash settled end of day. All index’s cash settled. Now your trade automatically closes end of day and you don’t have gap risk. Since it is cash settled you don’t have to buy shares if you are wrong. This reduces capital requirements

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I find the best time to place these trades is 2-3 hours before market close. The market is more predictable and the slippage is much more kind. If you can fix slippage you should always do so. It adds up quick!

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I also found that theta decay is at its highest the last couple hours of the market. This is good for sellers it means you make money faster, and thus reducing your risk by giving you more of an cushion against live price action.

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Here is some of my analysis on trades I made to show you a visual of theta decay and the times of day it erodes the fastest. This is the reason I trade 2-3hrs before market close.

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Next I have to set a stop loss. I do that by placing a buy to close order triggered once I hit a certain loss. Most times I’m looking to exit/close at 2x to 3x the premium I took in. If I sold the calls for $1, when it goes $2 against me I’ll buy to close it at a cost of $3

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This is just one of my income trading systems. Backtested on my chosen index it comes out to average of 52% return/year. Which is crazy high for stocks. The hardest thing with this strategy is just being consistent to see the results. It’s the law of large numbers.

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It’s a true income strategy. Delta neutral meaning not directional at all. I have zero directional bias when I put these trades on I dont care which way it goes. The secret sauce is in the math

Most times I’m not trading this short of a timeframe. But I am now with this one

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Lastly I want to reiterate my risk tolerance is larger than most when it comes to options simply because I am that much more comfortable in my understandings of them and particularly my management of them once they go against me. This is expert level strategy. Hope you enjoyed!

Oh and before I get a lot of DM’s asking if this can be done on BTC, yes of course strangles can be done. Same thing. Just more volatile and there is no daily gaps to combat.

You just have to get really good at neutralizing your delta with the increase volatility.

:)