Am testing outside of earning's potential strategies, there's something which has worked extremely well which am going to keep trialing. It uses cheap contract costs, captures directional movement, and sells high amounts of Theta.
- NVDA earning's release, after IV crush in the morning opened Strangle $100p/$150c (9/27). Price was near $120.
- After price runs enough to one side begin to sell near ATM covered calls/puts capturing huge premium and a big directional move.
- For example, NVDA $100p was $90 to open, worth $2.60 now. When NVDA price was $106 yesterday, sold the $104p for a $144 premium.
The $100p cost was $90, increased by nearly 200%, then sold near ATM put paying what's $70 a day; the cost to open the call side was $80. I can now continue to sell weeklies near $102-$104 price, cannot deviate too far from $100 strike or risk spread loss. I can open $103 next, selling next week which'll pay $220. $54 dollars a day for a month from something which originally cost me just $90 to open.
Didn't realize it but now I can see massive 500%-800% returns from a contract if can continue selling weeklies on one side. More importantly, I can now open the $120c (10/04) for $220, if the price recovers in the next week I can now capture the move and begin to sell covered calls, or keep selling covered puts if price remains flat. Having multiple Strangles to leave some open ended & sell various strikes would work best.
CONCLUSION: The point is to keep selling covered calls/puts, opened originally with a Strangle immediately post-earning's release to avoid IV crush, but yet still capture much of the post earning's reaction movement, which will help us reach one side of the Strangle to start aggressively selling. After the first sold covered call/put, can open on the other side at a new better price. The positions must be closed 2 weeks prior to next ER or face IV expansion which makes selling near Theta impossible.
Possibly The Most Effective Way to Sell Theta.
byu/breakyourteethnow inoptions
Posted by breakyourteethnow
3 Comments
Think this is what will rock from now on outside of earning’s.
Anything focused on selling Theta imo is the route I want to go, this let’s me not pick direction, capture a big directional move, start selling lots of Theta from an originally very cheap cost, can reopen on other side at better price catching any rebounds & start selling on that side if price rebounds/works against.
With such cheap opening costs, only enemy is flat price action for an entire month, but bought right after earning’s the post reaction should see movement throughout next week/month imo
Question: *”As long as it doesn’t blow past your sold leg, yes, selling against a winner can definitely work well. However, quick glance at your post, your sold leg is closer to spot than your purchased leg, so an outsized move against would cause a loser. And your risk is the spread between the two, so $400 in your NVDA example, less received premium. Just something to keep in mind.”*
Answer: That’s the thing, the Strangle pays $400 at $100.It would leave me with the premium as profit, so I stretched the sold covered put as far from bought strike as possible, while still being profitable. Should it blow past ($100p), I would roll to the next week possibly reaching $102 strike too. This is why would want multiple contracts though to leave some open ended should price keep moving, small insurance.
Sounds like a decent strategy. I’ll run it a couple of times on paper trading account with Avgo.
Is there any particular delta or IV you target?
How do you handle the risk of assignment? For example, if nvda closes below short put $104? Just roll option to next week?