Selling Options

A quick question to see if anyone focuses on selling options, collecting theta, and using time decay to your advantage. I have very little experience in this area but have been testing strategies in my practice account. I can see why GW suggested that selling a naked put correctly is one of the safest trades out there. It is kind of like being in Vegas but having the house edge in your favor. I intentionally entered several sloppy practice trades last week when various 233 charts signaled down. Nothing really to support the trades, weekly and daily not quite ready, just one signal on one chart expecting the market to weaken a bit this week. I was selling calls at or slightly out of the money with three weeks until expiration. I also bought at the money puts with 2 to 3 months of time to see how both sides performed. The long puts did as expected. Most are slightly down, maybe made up the spread, or slightly profitable. The short out of the money calls that were in that 2 to 3 week sweet spot when decay accelerates are up 35% to 40% (buck and a half or so on the option). I also tested a few call credit spreads with similar results. Curious if anyone has experience in this area and can recommend a suggested reading list.

Thanks!

NCT

I'm in the same boat I just sold my first options this week. I found a lot of useful info at tastytrade.com.

I have been selling options for two months now. I have made 12 trades 11 winners and 1 loser I lost 75 bucks on the one loss. I don’t know why I didn’t do this sooner. The stock price can move against you and you can still make money. I have been selling OTM naked puts and buying them back when I have a fifty percent profit. As my confidence grows I would like to sell ITM and buy them back when they are less than 1 dollar. This feels less like trading and more like income generation. I plan on doing this much more in the future. The profit is much smaller but much more consistent. How about you nctrader have you tried selling options yet?

Great update! Yes, I have had a lot of fun selling spreads over the past 6 weeks - especially during earnings season. Also tried a few iron condors. All of them using the Tasty Trade strategies. It can be a lot of work if you trade as much as they suggest but it keeps you engaged. I discovered that I did not particular like the earnings trade as it requires your immediate attention at the open the following morning - either close with profit or adjust and roll until you breakeven. It was fun but I was having to rearrange my schedule each morning to be available between 9:30 - 9:40 which was a burden. Watching volatility contraction on the ones that stayed within the expected move was exciting. It taught me a lot about IV and volatility expansion heading into a binary events.

That said simply selling high vol spreads in the direction of my GW charts worked out pretty well. I agree with your comment. I have had some back up against me but the theta decay worked in my favor and once the chart turns over in my direction all is well. It is more like income generation than trading which piqued my interest. I was looking for strategies that I could use in my IRA to help generate additional income. I started with a small trading account to get my feet wet and test. You can paper trade but you really do not know how you will react until you get your feet wet. I did not have all the TT rules down before starting. My first earnings trade that went against me was a great educational experience. I had to use all of knowledge regarding peaks and slams to adjust my trade and work it a bit over three weeks to get it back to even. It doesn't sound sexy or glamorous but the experience was priceless. I still have not reached a point where I am willing to start ITM. Most of mine are just OTM with 65% or more probability of success.

NCT