OptionHans
@HansCashFlow
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Ivy League award-winning asset manager. Managed $1B in option strategies, $750M in options cash flow. Need help? See below. (tweets are NOT advice)
$750M cash flow for investors
Joined January 2023
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Want to learn how to crush the premium with option selling strategies like covered calls and cash secured puts?
About me...
☑Managed $1 billion in option overlay strategies.
☑Have generated $750 million in options cash flow for investors in options strategies I've managed.…
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Guys, when you've captured 80% of the profit in a short option trade guess what? The math on risk/reward HAS CHANGED.
When you originally set up the trade you had a nice Theta to Gamma ratio - meaning you had plenty of potential erosion for the movement risk you were willing…
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A lot of folks saying that put selling will get you killed in a down market. Versus what? Stock ownership?
Nope, you'll be better off selling puts - better risk-adjusted returns versus long only stock.
Now, are you saying put selling will underperform versus cash? Yeah…
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Option sellers be aware of the change in the tone of this market. June was an extremely low vol month, even seasonally. July not much different. And that meant cash secured put strategies were the place to be.
Volatility is rising however, particularly intra-day swings.…
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META's move is a good example of how negative leverage in selling options can work against you.
Remember that when you sell options you are on the angry side of leverage. That's not necessarily a bad thing because you receive premium for it. But make no mistake: you can sell a…
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So you'll hear about Gamma levels around here but what do they mean?
Calculating Gamma is both an art and science but let me give you a small example.
Covered call sellers are always selling calls, but who do they sell them to? Usually market makers, who are trading their…
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A lot of what you read about selling options is the easy part. Opening positions, collecting premiums, letting them expire worthless... that's the EASY button side of it.
But being a successful option seller is about doing the HARD things - closing positions when they aren't…
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I often like to think of Covered Calls and Cash Secured Puts as a target management tool. For example, say I want to buy MSFT at 300 when it's trading at 325. Selling the 300 put helps me to commit to the 300 level. I don't get in my own way when it drops to 315 and I'm…
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Guys I keep saying this: realized volatility is higher and rising on a daily basis. This is not the environment to be getting aggressive on option sales, and certainly not the right climate to be adding to bad positions. Many option sellers who've gotten into this game this…
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For all the talk of put sellers getting hurt (I had some light hearted fun with it earlier) the out-of-the-money put sale is actually better than owning the stock in this kind of market.
Short a 25 delta put is less long than 100 deltas of stock.
Now, the 25 delta will…
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Covered calls or cash covered puts - which is more long the market? Well, it depends... if you did both at the same strike price they would be equal due to put call parity (long stock + short call = short synthetic put). But typically people sell out of the money options for…
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Does anyone remember why a number of people on here keep repeating that you'd better like the companies you sell puts on? Cause you own them now.
#optionselling
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Why does put selling work much of the time? Because puts are generally overpriced. Why? Because of Mark Twain:
“I've had a lot of worries in my life, most of which never happened.” - Mark Twain
Markets worry. Investors worry. It shows up in put pricing. But most of the…
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If you're short puts or calls and the positions close near the money on expiry pay attention to aftermarket trading. You may end up assigned if there is movement to in the money. I've exercised long calls as late as Saturday morning on news. The seller was quite surprised on…
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So I'm an option trader and an option seller. I've managed up to 8 covered calls ETFs at a time, and what have I told hundreds of clients, students and investment advisors? That my base approach is I don't want to sell covered calls.
What? Yes, you heard that correctly.…
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#TSLA
has been a nightmare lately for longs. But if you've been selling calls on the way down it has eased the pain. That's what it's all about sometimes, getting paid while you wait for better days.
Would you have been better off selling the stock before the selloff? Well,…
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When the VIX is low (14 and under) it is generally a poor time to sell covered calls. Shocks tend to come to the upside (Meta, NVDA). Short covering is happening, underinvested managers are playing catch-up, new money is being put to work.
When the VIX is low allocators are in…
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I'm seeing too many comments about nice csp profits turning very red by the end of yesterday. I keep saying it: ABC, Always Be Closing.
Yes this market has been relentlessly up but grab wins when you can: don't squeeze those options for every last drop of premium. The pain…
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Covered calls can be a great way to squeeze the premium and add cash flow to your account. But they come at a cost: you potentially give up upside in the name. How much? Well it depends on the strike you select: in the money, out of the money, at the money etc.
But think very…
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Want to hit home runs? Long options is the way to go. Make leverage work for you - ie turn $1 into $5.
But hold on, one issue with that is that generally options are overpriced, meaning implied vol is higher than historical. We call this excess value the Volatility Risk…
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“An investor needs do very few things right as long as he avoids big mistakes.” -Warren Buffett.
Well, for options trading this has an even deeper meaning, because mistakes can be big in an exponential way.
When you sell an option for $1, the most you can make on it is $1.…
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Some folks think selling puts on down days is the way to go. I think that can work if the stock is in a general uptrend, ie above its 20 day, which is above its 50 day (and maybe even 9 above the 20).
But do you want to be selling puts into a severe multi-day selloff? Well,…
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When selling options remember to treat the "expected move" estimates with a grain of salt - meaning the stock is expected to stay within those parameters only 68% of the time. Yes, that is MOST of the time, technically. But that also means that 1/3 of the time strikes will be…
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1200 followers! Thank you all for the warm and continued support. When I get to 1400 I will give away access to my flagship Options Mastery Course to 2 lucky winners. Happy trading all,
Hans
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LEAPS calls are a unique way to create upside exposure to a stock. But keep in mind that Vega risk is highest for longer term options. So the further out you go the more a change in volatility will help or hurt your holding. Try to monitor where the implied vol is in its…
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@Ksidiii
Wow this is awesome Kris. Having traded through many of these events over 25 years I agree completely. Don't be a deer in the headlights. Don't over analyze. Buy vol dips. Don't try the pick the tops and bottoms. Vol is high so know that the scalping ops will stay for some…
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Selling cash covered puts? Good results in the long run are certainly about wins, but also about reducing losses. They are about keeping the deadweight anchors out of your account. They could haunt you for a looooong time. That means when a put on a crap stock goes…
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Folks, selling options is a great way to generate cash flow but it's not without risk. Positions need to be managed and hard decisions sometimes need to be made to preserve hard fought gains.
One way to protect is to pick up some "teenies", which are some far out of the money…
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Option pricing has popped up again on a rare 2% selloff in tech.
Remember, when option prices rise you are exposing your option selling to higher embedded negative theta - this means more decay potential, meaning better option selling yields.
When selling options theta is…
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In a VIX 12-14 environment I've been saying be very careful with covered calls - they are often underpriced and strikes are closer to where the stock is trading.
Remember, when option pricing is low not only are premiums lower but your strike prices, for a given delta, are…
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PANW another example of the danger of selling puts into earnings. I saw folks selling puts for 0.30 that are now worth $15. Convexity can hurt. And since it's a gap there is little ability to adjust. Yes, gaps can happen anytime but on earnings you're inviting problems into…
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I've said this before but this past week has been another good reminder to ABC: Always Be Closing.
When volatility is more elevated, which it clearly has been, you need to take off positions when presented with 50%-75% capture. By capture I mean if you sold a put for $2,…
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Another note about path dependence with covered calls. Very important to understand this.
Investors are often confused with CC performance when the underlying stock doesn't move over some period, while the covered call strategy lost. Because after all, aren't we told that we…
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I keep reading on X about how the "Market Makers" are doing this and that and manipulating whatever. In the trading world market makers seems to be "the man", a target responsible for whatever sinister conspiracy that people can come up with. You're giving the MMs way too…
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Even though selling out a bad position is technically a loss, it's actually a winner's move. Because over time getting rid of positions that aren't working for you is the way to success. Selling options entails asymmetrical risk. Make sure you are getting in the way of that…
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Need yield? No problem. Turn yourself into a stock landlord and use your equity portfolio as a rent-collecting machine with strategic covered calls.
1.Sell away the "unusual moves" by targeting a strike that is at the edge of the standard deviation envelope.
2.Sell a one…
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Feel the freedom that comes with relinquishing a bad position. It can no longer torment you - you are now free to allocate your emotional capital towards something positive. Don't underestimate the power of moving on...
#Optionselling
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If anyone is telling you that selling options with undefined risk is ok (ie selling naked calls), please stop listening. Make sure you can distinguish sensational trades that are meant to grow followers from those on Twitter that actually practice safe trading with proper risk…
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Sometimes with options selling you're running to stand still. The market is weak and you're taking in premiums but the overall portfolio is dropping more than you can raise in premiums. That's OK. It's all part of the process.
#Optionselling
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Put writing can be a very useful tool for those looking to potentially own a stock at a lower price.
But some people also sell puts as a way to generate income - they would in fact prefer to not take ownership of the stock at all.
Either way, put selling often has a…
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Selling options is a little like flying a small Cessna plane (I have a private pilot license). When the air is calm, and the skies are blue and clear it's the easiest thing to do. You can fly that thing with your little pinky finger.
But when the wind picks up and the storm…
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New option sellers, remember that choosing a strike to sell isn't about looking at a fixed level of strike distance. For example don't pick 2% out-of the-money strikes for all your strikes regardless of the stock you're trading.
3% might be ok on Apple but may be too close for…
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SPX just went from 4100 to 5300 and folks are getting upset with a 200 point selloff. These are stock markets guys - there's supposed to be some give and take. We didn't have a 2% daily drop for months. Rates and inflation are high, market multiple is no bargain. Expectation…
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This is not the market to be selling puts in anything that isn't 5 Star. Selling puts on junky speculative names, or companies that are going to need cash in the near future is something you need to really think about. Look at solar names today and yesterday. No room for…
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VIX is up, VVIX recovering sharply and skew getting a bid? Is this an opportunity for option selling into fatter premiums...or reason to be cautious with the selling campaign after a run that has seen SPX underrealize by a TON versus typical market movement.
We haven't had a…
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Have you ever heard: "The buyer of a put is bearish". Not necessarily true. My house insurance is effectively a long put contract, but I sure don't want it to trigger! So, the buyer of a put may be protecting an underlying stock holding against a severe drop in value. He's…
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I've noticed people saying that covered calls are all about the income. "Don't worry about capital gains" - they say. I disagree. These are not a Treasury Bond, you have most of your capital at risk here. The premium income is a bonus, but you must, above all, consider the…
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Sold the MSFT Oct 300 put for 5.75. Game plan: if MSFT rallies I collect the premium and will do it again. If it drops soon I'll look to finance some upside calls with the premium I received. Worst case I own MSFT at $300, which is great. I love the name for AI, balance…
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Over 2000 followers - thank you all for your support! I love being part of the X options trading family. In celebration I'm putting my course on sale - use code 300off at checkout to save $300 on my 16 hour comprehensive options trading course, which is designed to help you…
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Guys remember that covered calls and cash secured puts are not so different. Think about it. With covered calls you accept most of the downside in the stock and limited upside. With put sales you similarly accept most of the downside in the stock and limited upside (limited to…
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Options trading is a little like poker. You have to know when to hold 'em and when to fold 'em. Dump those bad positions before you waste much time, money and emotional capital on them. But let the winners work for you. Options have a negative asymmetrical profile. You can…
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The combination of low option prices and steadily rising stocks makes for a difficult covered call environment.
Remember, when VIX is low you tend to have 2 things happening:
1)markets are not worried about much and therefore stocks are rising
2) low premiums, particularly on…
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Remember the wheel trade... those wheels will be in full rotation next week.
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When trading long options... give yourself enough time to be right.
After all, the one thing we can't control is when our stock idea will play out.
There's nothing worse than buying a call, only to see it expire, and the stock to THEN make the move we expected.
Harness the…
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"Options are a zero sum game." Technically true, but that doesn't tell the whole story.
I've traded long gamma for decades. When you're long options on balance and you're delta neutral, market movement is good.
The saying was "the bend is your friend". That means you can…
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This has turned into a tougher CSP market. Which means you have to adjust. Letting a 15 cent put sale turn into a 2 dollar loss is what we're trying to avoid. That's going to eliminate a lot of previous wins. Control what you can and absolutely react to adversity - don't just…
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Are you selling in the money calls? That's ok: you're actually running a synthetic put sale strategy, and that's ok. You're giving yourself some extra cushion to the downside and thus less delta long the market. You're also probably giving yourself a little extra juice to…
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Don't want to sell a position at a loss? That's why you're not performing.
Most people take quick profits and let the losers run.
That's why most people don't last in trading.
Don't be most people.
#optionselling
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$1 Billion Ivy League option overlay portfolio manager
13 year professional options market maker
12 year covered call and downside protect options strategy fund manager (9 overlay ETFs)
Featured on Bloomberg television, TD Ameritrade shows, Nasdaq Trade Talks, Morningstar…
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What is trading options delta neutral? It's when you have a certain positive or negative directional risk to a position and you're looking to neutralize that risk, ie reduce your overall delta to about zero.
Example, you're long two 50 delta calls on AMD but you're nervous…
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Volatility metrics often confuse people. "What do you mean a 21 VIX can be cheap and a 14 can be expensive?" Well, remember that options are a derivative of an underlying and are tied in some measure to that underlying's behavior (movement).
It's not a perfect relationship…
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One of my course students asked: "I don't understand the weekend theta decay idea - don't the options decay evenly each day?"
My answer in our Gamma Course Community:
"Theta decay is ASSUMED by the model to be consistent each day (although it should get a little higher each…
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Selling an out of the money covered call into earnings? You're just selling an in the money put. Doesn't work great when the stock sells off 15%. Doesn't matter how much time value you got.
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A $10,000 investment made in 1950 in the Standard & Poor’s 500 Index would have appreciated only to $14,590 by year-end 2022 if invested only in May through October. But if invested from November through April, it would have appreciated to $928,356.
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30% of the S&P 500 are in the blackout period now with 50% in blackout by the end of the week (this means no buyback activity). Estimates are that volumes decline by 30-35% during buyback blackouts. Careful out there - low liquidity drift.
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Ok options lovers. Somebody push me over 2800 followers. That might be where X will pay me 0.00000045 Mexican pesos
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When thinking of selling cash secured puts don't just start with a hunch. Layer all the forms of edge you can in support of the trade:
1.Volatility Edge (ie are options cheap or expensive)
2.Technical Edge (ie can you incorporate a view from trendlines, moving averages, MACD.…
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Notice that when the VIX goes from 13 to 18 in a hurry you get hurt by 2 things on your short equity puts.
One is the act of positive Delta: you get hurt from the stock going down and the puts going up. That one is easy and expected for most puts with some reasonable life…
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Remember, high volatility names are high for a reason - they are not only more volatile in a general sense, but are also prone to bigger gap risk on news or earnings.
This is a key point. You are playing with fire with names that lure you into option sales with very high vol.…
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Stay off TILT in this market. TILT is a poker term that means losing your cool, especially following a bad beat (ie someone beats you by drawing a miracle card).
Ok, so you've had a good run with cash secured puts - this market rally has been monumental, forcing even the big…
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#META
continues to deliver a mastercourse in why selling options into earnings usually doesn't make sense.
Last year it soared through upside expected strikes by a TON. Today it is crashing through the downside expected move by a lot.
Time to decide: do you want…
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Delta helps to position your total size appropriately, but make no mistake: when you're selling options you need to assume 100 deltas of risk.
So at a 50 delta you may be long 150 deltas via 3 short put contracts. But you're true risk is 300 deltas - worst case you own 300…
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Remember that option behavior is not linear. This has to do with delta:
When a strike price is way out-of-the-money the option will be LESS reactive to moves in the underlying stock. This is reflected in the delta, which will be lower, ie 15. The option price should move…
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When long covered calls, time is important to take into account when looking at performance. Your maximum profit occurs at the strike price but only at expiry...if the stock runs to the strike price right away you won't see that full profit yet - the option will in fact gain…
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VIX futures still mildly backward. We're definitely not out of the woods here. Be prepared for big swings either way. Trader's market for sure. I wouldn't be averse to selling some covered calls into any rallies with premiums elevated and the SPX massively above its 125MA.…
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Let's recall a possible limitation to cash secured puts: giving up significant upside. Take NVDA for example: at $400 you could have sold a put for say $10. The good news is the stock rose so the premium you sold looks like money in the bank. The bad news is the stock went up…
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I was asked about the best way to get started with cash secured puts for someone with a full-time job.
I told them I would stay focused on names that you wouldn't mind owning - that way if you end up owning them you won't panic (you don't want to be worrying about getting…
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$TSLY is up less than half of $TSLA's performance this year. In covered calls the path of the underlying stock is VERY important.
#optionselling
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I remember when I started trading pro in the mid-90s things were starting to get more and more volatile as internet mania began to take hold in the stock market.
One big trader once told me: "If you can't make a Volkswagen a day around here you're in the wrong business."…
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$SMCI is another reminder of the wisdom of closing short options early. Up over $100 after the close on Friday. A few people will be surprised to find they are short shares on Monday morning.
Why? Because the call holder had the right to exercise calls up to 5:30pm typically…
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As the buyer of an option time is not your friend. Time value erosion is what you're battling.
But on the other hand, time is the one thing you can control. Give yourself ENOUGH time to be right. I've seen too many people have an idea and buy the cheapest option possible,…
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When it come to option selling, when markets are signaling better health you can trade the more speculative stuff. But when things are on edge it's exactly that specific stuff that suffers from outsized realized vol. Yes VIX is 21 and that's exciting from a premium standpoint,…
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From an option seller's standpoint the good thing about a poor looking chart is you're likely getting a little more juice for your sales - implied volatility tends to rise into selloffs.
The bad part is that the chart looks bad. While $TSLA seems to be trying to find a base,…
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Cost to protect is very low at the moment... remember, when protection is cheap people often use it to STAY LONG equities.
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There's an Icelandic term called "Gluggavedur", which translates to "window weather".
It essentially means staying cozy and safe inside while you watch the weather unfold outside, good or bad.
Sometimes in trading, in option selling in particular, that's exactly what we…
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My Market Temperature Indicator (MTI) is still flashing red so adjust your trading approach accordingly. We're due for a face ripper rally but as we've been seeing lately the rips have faded - that will often happen with a VIX in the high teens.
One interesting thing I see is…
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Have to be careful with low VIX as an indicator of movement risk - yes it implies lower movement overall, but very low VIX often means equity markets are climbing a wall of worry: downside risks are more limited while upside realized likely being quite healthy.
This can make…
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Put/Call ratio crushed today to around 0.75, lowest print since July. Some people think that's bearish because too many people are excited and loading up on calls, but in reality it can be quite bullish as strong market performance usually follows low numbers. It means retail…
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I posted this 9 days ago. Mkts just can't sell off. And I mentioned CTA buying... Sure enough, over the last 10 days CTAs have bought nearly $70 billion in US equities. Largest buying we have seen on record (back to 2016).
@SamanthaLaDuc
Yup Gamma pretty big here. I've been saying we are gonna have a tough time selling off much. Also CTA strats are buying here, and will be more aggressive as mkts move a little higher. Buying begets buying. Fundamentals are deteriorating but doesn't matter for the moment
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As floor traders we'd always get excited about the Power Hour, which is primarily the trading hour of 3pm to 4pm (sometimes also considered 9:30am to 10:30am).
Why is it worth waiting for? Even on slower days the market comes alive at that time as traders jockey for position…
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I don't want to kick the Tesla fanboys while they're down but for those who have been buying it since 200 what exactly about the
#TSLA
chart have you been liking?
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Large spikes in VIX aren't a bad indicator for market buying opportunities. But trying to equate a low VIX to a top in the market is mostly a fool's errand. VIX can stay low for a loooooong time as markets continue to climb a wall of worry.
Be careful with "expert" opinions of…
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Remember guys VIX spikes happen abruptly but periods of falling VIX can last a long time as we can see lately - that's because equity markets can continue climbing the wall of worry. Climbing the wall of worry can go on and on and on, pulverizing realized volatility. Don't…
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Guys remember that deltas (like most option greeks) are a moving animal. In a high volatility environment a 25 delta call might be,say, 5% above where the stock is trading. In a low volatility environment it might be 2.5% above where the stock is trading.
Be careful when…
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Option premiums are made up of 2 components:
☑Intrinsic value (embedded value)
☑Extrinsic value (ie time value)
At the money and Out of the money options will generally be all extrinsic. In the money options will have at least some intrinsic value.
Intrinsic value: for…
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Think of options as representing investor sentiment - fear, greed and everything in between. So selling options can be seen as monetizing that investor sentiment.
Why is this powerful? Because in so doing you can turn a negative into a positive for your portfolio.
When…
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