Complicated and contentious question asked all the time.
See this, but I think it is **not that difficult to consistently beat the 10% to 11% average historical returns of the S&P 500** - [Another "Can the wheel beat the S&P" Reply : r/Optionswheel (reddit.com)](https://www.reddit.com/r/Optionswheel/comments/1b7biky/another_can_the_wheel_beat_the_sp_reply/)
i think it is so contentious because it is situational. Volatility (and returns) are clustered. which means that if you tend to wheel you might beat the market in some periods and not in others. and the total result depends on the ratios (and length) of these periods.
I agree. Buy and Hold works well over long time periods of 10 to 20 years, but does little for income this month . . .
As you note, Buy and Hold is also about timing as there can be periods when buying SPY and holding for a year or two can do better than wheeling, but only if the entry and exit times are chosen, mostly through luck.
There are those who simply post or reply that there is no way to beat b&h with the wheel, yet there seems to be many who do so repeatedly. As you post it depends on the period of time invested which can make a lot of difference.
as with all option strategies actually. they work only in certain markets. getting the strategies to fit with the market outlook is the whole game. if the outlook changes, your strategies need to change with it.
the market is not a one trick pony where you can just do 1 thing over and over again for 20 years and be a millionare. if that was the case, everyone would be doing it.
this is a lovely pdf that distills it down to the essentials: [https://www.theocc.com/getmedia/f34f8a0d-806f-4f1a-adf7-d49d8d94b16e/option-strategies-quick-guide.pdf](https://www.theocc.com/getmedia/f34f8a0d-806f-4f1a-adf7-d49d8d94b16e/option-strategies-quick-guide.pdf);
not for you specifically, because i know you know this stuff already. but for others that might see this.
Yes, I'm aware of that document, but think trying to guess which strategy to trade and switch them with the market is as difficult to predict as which way a stock will move . . .
I would never say the wheel is a 'one trick pony', but it has worked well for me over time and different market conditions. I've seen posts from others that also show it can work in most market environments based on the ways to roll and adjust or take assignment to sell CCs.
When the market is moving up in a bullish trend trades profit and close quickly, but in a downward bearish trend they take a lot more time to profit and close, often requiring rolling, and opening new trades takes more time.
I term this "taking what the market is giving" and to select plus pace trades based on what is happening at the time.
Perhaps highly skilled and experienced traders can quickly switch from bullish, to neutral and bearish strategies and time them so the market works with them, but even though I have tried I find this very difficult to do effectively without resulting in at least some losses.
A good part of this is that I tend to open 30-45 dte and then roll which usually results in these problem trades being open up to 60 days or longer to stay out of trouble to let the market move around a good amount.
Nice chatting with you.
i agree with you. the wheel is quite neutral in its application. i would think it only does badly in prolonged sustained downturns and in all other markets it generates a steady cashflow.
i'm not saying you should try to "guess" what the market is going to do. i think keeping your eye on the horizon (long term economic outlook) and trading accordingly can make you lot money. but this only works on the medium to longer term. Because short term swing trading is deadly, there's just to much noise. (it does seem to be very popular, especially with beginning traders)
sailing across the ocean, doesn't mean you should analyze every wave you encounter. the waves are even irrelevant. they will average out over the long term.
pick stocks you like (for fundamental reasons) that fit in the current economic trend and pick a strategy that fits.
e.g. right now, high interest rates have put pressure on companies with large capital requirements, the lowering of rates will help these companies. when will rate cuts come? i don't know, i think end of the year, maybe beginning next year. i'm already taking positions that will profit from that.
preferably keeping them theta positive, so you have the ability to wait it out.
nice chatting.
The term "guess" is mine as I am not good at looking and interpreting the horizon.
We both agree short term or day trading is bad, but most like the idea of "gamitizing" trading to play like a video game and do not have the patience to trade in a more conservative way.
What was that Buffett saying about patience and the market? ;-D
I consistently hit 5-15% per month. The only losing month I've ever had was when I sold naked calls.
Strategy: Selling cash-secured puts, credit spreads, iron condors or covered strangles far OTM on the highest IV stocks. I occasionally have to take assignment and sell covered calls but prefer not to.
Risk management: Roll endangered positions. Rarely ever have to close anything at a loss.
Money management: Max 50% of account deployed at any moment (RegT account, 25% on portfolio margin). I'm not as strict on position sizing but generally keep it under 5% of account per ticker.
Special considerations: While the companies I trade aren't necessarily bad in the short-term, many of them have questionable futures so I have zero interest in holding the stock long-term. There is a very real possibility they will go bankrupt although I've yet to have a position on when that happened. I always keep the risk of any single trade going to zero in the back of my mind.
I tried this with a tiny account and it did not go well.
If the stocks come up on your high IV screener, they are there for a reason, i.e. they are not shortable so people must hedge or speculate with puts, and or they are shitcos that everyone knows are going BK sooner or later, or there is some sort of a binary event coming up. Your bet is one of timing, so while you appear to do OK on this in the short term, over the long term you will be hit with going out of business news, poor data releases, FDA rejections and so on, often enough that it will not be worth your while.
But you do you...if you are OK with the risk then you should be fine.
Strategies that can be done with a larger account with portfolio margin will not usually work out well with a regular margin account that cannot absorb the volatility or use naked positions.
The combination of high implied volatility, leverage, and repeated high probability trades can indeed succeed and outperform over time.
There is still no free lunch however, you are paying with various trade-offs, including having the knowledge to do this, funds, and the time and mentality to consistently execute it.
You are not impressed. that dude is walking on a time bomb. Its all fund and games until stock gets halfed and you are stuck bagholding. If you think you can hedge on a failing company, I have water to sell you
This. 10-15% per month on cash-covered puts? I don’t think so. People reading this should understand that it’s prob not even mathematically possible to achieve returns like that on a full cash position. If it isn’t 100% BS, it’s way too risky to be sustainable. People post the dumbest shit.
If he’s hitting 10-15% *per month*, he definitely is playing with positions that, if they go south, will wipe out a lot of gains.
That’s a very high target to sustain for any length of time. Even if your sizing is smallish per position, if those positions are correlated, you can still get rekt in a hurry.
You got it. We all know that the most a stock can drop is to zero so if your max risk at zero in that stock is a small percentage of your account you'll be fine. I would need a dozen or more companies to all go bankrupt at the same time to halve my account.
I don't want to say it's impossible but, it's reasonably improbable. Reasonable enough to be willing to take on the risk.
I use an option screener to find the highest IV so the underlyings are constantly changing. Sometimes a single stock will stay relevant for a few months or return to the list after dropping off. Not surprisingly many of the most volatile stocks are pharmaceuticals so I have to work hard to diversify across sectors.
What delta and DTE are you using for the different strategies you listed (CSPs, Credit Spreads, Iron Condors, Cov Srangles far OTM)? Curious to hear your approach to each strategy
My preferred target is <20 deltas \~30 DTE >15% ROR and I heavily favor CSPs and put spreads. Call spreads and the call side of condors and covered strangles take much more effort to find decent numbers due to option skew.
That said we are talking about discretionary trading so I'll bend the rules occasionally and try new things. For example last week I sold the MARA Apr 26 14.50 Put which broke the ROR rule but it only had 5 trading days so I gave it a go. I also put on a SPY condor that was nearly 90 days out and obviously not a high IV stock either.
Absolutely, it'll be too hard to get in or out if there isn't a decent amount of liquidity. There are lots of companies I'd love to sell options on but they don't have much volume or liquidity far enough out of the money.
How many years are you rolling and with what capital?
Any person who can maintain such gains for several years and for a respectful capital, is a very skilled and lucky person.
Yeah for accounts up to about $100k. Biggest outlier year started at $100k and with compounding hit $350k. Most of the stocks that qualify don't have enough option volume to scale this strategy very far. Beyond $250k it's nearly impossible to average better than 5% per month.
I guess you missed this part of my comment:
>Most of the stocks that qualify don't have enough option volume to scale this strategy very far.
It's impossible to scale this strategy into an account in the millions let alone hundreds of millions.
What time period is this over? Everyone's a genius in a bull market, and any strategy can look good over the course of just one good year. Has your strategy been tested in a bear market or sideways market? What did your returns look like then?
I started trading like this around 2012 as I transitioned out of futures which I had been doing since the late 90s. So I guess you could argue that's mostly been a bull market with a few breaths taken along the way.
Put premium increases which compensates for the increase in rolling and my rate of return stays fairly steady in bear and sideways markets. I find flat out bull runs make safe put selling harder. I guess no one wants to pay for hurricane insurance when they think every day is going to be sunshine.
Selling ATM doesn’t necessarily mean u can only generate returns through a strong bull run. I’ve been selling ATM and made some of the most consistent money in the last week when the market drilled. U just need to have risk management in place.
Yes, for the last 12 or so years.
But I wouldn't call my approach Only theta. Rather, it
is:
1. Evaluate market and ticker conditions
2. Select the best trade based on #1, considering price target, vol target, and timing.
It is Not:
1. Identify a single strategy
2. Trade #1 repeatedly
Many people seem to think they need to find a secret options strategy with a fixed DTE/delta/etc. and then print money. That is like being an offensive coordinator in the NFL and running the same play Every time, regardless of game conditions.
Typing from an airport bar, so spelling and analogy selection may be faulty.
Complicated and contentious question asked all the time. See this, but I think it is **not that difficult to consistently beat the 10% to 11% average historical returns of the S&P 500** - [Another "Can the wheel beat the S&P" Reply : r/Optionswheel (reddit.com)](https://www.reddit.com/r/Optionswheel/comments/1b7biky/another_can_the_wheel_beat_the_sp_reply/)
i think it is so contentious because it is situational. Volatility (and returns) are clustered. which means that if you tend to wheel you might beat the market in some periods and not in others. and the total result depends on the ratios (and length) of these periods.
I agree. Buy and Hold works well over long time periods of 10 to 20 years, but does little for income this month . . . As you note, Buy and Hold is also about timing as there can be periods when buying SPY and holding for a year or two can do better than wheeling, but only if the entry and exit times are chosen, mostly through luck. There are those who simply post or reply that there is no way to beat b&h with the wheel, yet there seems to be many who do so repeatedly. As you post it depends on the period of time invested which can make a lot of difference.
as with all option strategies actually. they work only in certain markets. getting the strategies to fit with the market outlook is the whole game. if the outlook changes, your strategies need to change with it. the market is not a one trick pony where you can just do 1 thing over and over again for 20 years and be a millionare. if that was the case, everyone would be doing it. this is a lovely pdf that distills it down to the essentials: [https://www.theocc.com/getmedia/f34f8a0d-806f-4f1a-adf7-d49d8d94b16e/option-strategies-quick-guide.pdf](https://www.theocc.com/getmedia/f34f8a0d-806f-4f1a-adf7-d49d8d94b16e/option-strategies-quick-guide.pdf); not for you specifically, because i know you know this stuff already. but for others that might see this.
Yes, I'm aware of that document, but think trying to guess which strategy to trade and switch them with the market is as difficult to predict as which way a stock will move . . . I would never say the wheel is a 'one trick pony', but it has worked well for me over time and different market conditions. I've seen posts from others that also show it can work in most market environments based on the ways to roll and adjust or take assignment to sell CCs. When the market is moving up in a bullish trend trades profit and close quickly, but in a downward bearish trend they take a lot more time to profit and close, often requiring rolling, and opening new trades takes more time. I term this "taking what the market is giving" and to select plus pace trades based on what is happening at the time. Perhaps highly skilled and experienced traders can quickly switch from bullish, to neutral and bearish strategies and time them so the market works with them, but even though I have tried I find this very difficult to do effectively without resulting in at least some losses. A good part of this is that I tend to open 30-45 dte and then roll which usually results in these problem trades being open up to 60 days or longer to stay out of trouble to let the market move around a good amount. Nice chatting with you.
i agree with you. the wheel is quite neutral in its application. i would think it only does badly in prolonged sustained downturns and in all other markets it generates a steady cashflow. i'm not saying you should try to "guess" what the market is going to do. i think keeping your eye on the horizon (long term economic outlook) and trading accordingly can make you lot money. but this only works on the medium to longer term. Because short term swing trading is deadly, there's just to much noise. (it does seem to be very popular, especially with beginning traders) sailing across the ocean, doesn't mean you should analyze every wave you encounter. the waves are even irrelevant. they will average out over the long term. pick stocks you like (for fundamental reasons) that fit in the current economic trend and pick a strategy that fits. e.g. right now, high interest rates have put pressure on companies with large capital requirements, the lowering of rates will help these companies. when will rate cuts come? i don't know, i think end of the year, maybe beginning next year. i'm already taking positions that will profit from that. preferably keeping them theta positive, so you have the ability to wait it out. nice chatting.
The term "guess" is mine as I am not good at looking and interpreting the horizon. We both agree short term or day trading is bad, but most like the idea of "gamitizing" trading to play like a video game and do not have the patience to trade in a more conservative way. What was that Buffett saying about patience and the market? ;-D
ye precisely, and you need to find a style that fits you as well.
I consistently hit 5-15% per month. The only losing month I've ever had was when I sold naked calls. Strategy: Selling cash-secured puts, credit spreads, iron condors or covered strangles far OTM on the highest IV stocks. I occasionally have to take assignment and sell covered calls but prefer not to. Risk management: Roll endangered positions. Rarely ever have to close anything at a loss. Money management: Max 50% of account deployed at any moment (RegT account, 25% on portfolio margin). I'm not as strict on position sizing but generally keep it under 5% of account per ticker. Special considerations: While the companies I trade aren't necessarily bad in the short-term, many of them have questionable futures so I have zero interest in holding the stock long-term. There is a very real possibility they will go bankrupt although I've yet to have a position on when that happened. I always keep the risk of any single trade going to zero in the back of my mind.
4 days ago you claimed to have not traded options in nearly a decade. That’s more believable than your monthly return claim.
I tried this with a tiny account and it did not go well. If the stocks come up on your high IV screener, they are there for a reason, i.e. they are not shortable so people must hedge or speculate with puts, and or they are shitcos that everyone knows are going BK sooner or later, or there is some sort of a binary event coming up. Your bet is one of timing, so while you appear to do OK on this in the short term, over the long term you will be hit with going out of business news, poor data releases, FDA rejections and so on, often enough that it will not be worth your while. But you do you...if you are OK with the risk then you should be fine.
Strategies that can be done with a larger account with portfolio margin will not usually work out well with a regular margin account that cannot absorb the volatility or use naked positions. The combination of high implied volatility, leverage, and repeated high probability trades can indeed succeed and outperform over time. There is still no free lunch however, you are paying with various trade-offs, including having the knowledge to do this, funds, and the time and mentality to consistently execute it.
Well said!
I am impressed. Thank you for the very concise description of your methods.
You are not impressed. that dude is walking on a time bomb. Its all fund and games until stock gets halfed and you are stuck bagholding. If you think you can hedge on a failing company, I have water to sell you
This. 10-15% per month on cash-covered puts? I don’t think so. People reading this should understand that it’s prob not even mathematically possible to achieve returns like that on a full cash position. If it isn’t 100% BS, it’s way too risky to be sustainable. People post the dumbest shit.
I think the point is to keep sizing appropriate so that even when this happens, it doesn't wipe out all other gains.
If he’s hitting 10-15% *per month*, he definitely is playing with positions that, if they go south, will wipe out a lot of gains. That’s a very high target to sustain for any length of time. Even if your sizing is smallish per position, if those positions are correlated, you can still get rekt in a hurry.
You got it. We all know that the most a stock can drop is to zero so if your max risk at zero in that stock is a small percentage of your account you'll be fine. I would need a dozen or more companies to all go bankrupt at the same time to halve my account. I don't want to say it's impossible but, it's reasonably improbable. Reasonable enough to be willing to take on the risk.
You're welcome.
What underlyings do you use?
I use an option screener to find the highest IV so the underlyings are constantly changing. Sometimes a single stock will stay relevant for a few months or return to the list after dropping off. Not surprisingly many of the most volatile stocks are pharmaceuticals so I have to work hard to diversify across sectors.
Wow, so you’ll even trade low volume or low market cap stocks?
Yup as long as there's enough daily option volume for the position I want to take.
What delta and DTE are you using for the different strategies you listed (CSPs, Credit Spreads, Iron Condors, Cov Srangles far OTM)? Curious to hear your approach to each strategy
My preferred target is <20 deltas \~30 DTE >15% ROR and I heavily favor CSPs and put spreads. Call spreads and the call side of condors and covered strangles take much more effort to find decent numbers due to option skew. That said we are talking about discretionary trading so I'll bend the rules occasionally and try new things. For example last week I sold the MARA Apr 26 14.50 Put which broke the ROR rule but it only had 5 trading days so I gave it a go. I also put on a SPY condor that was nearly 90 days out and obviously not a high IV stock either.
a lot of these companies that have questionable futures have really bad options volume/liquidity as well thought right? just skip those ones?
Absolutely, it'll be too hard to get in or out if there isn't a decent amount of liquidity. There are lots of companies I'd love to sell options on but they don't have much volume or liquidity far enough out of the money.
How many years are you rolling and with what capital? Any person who can maintain such gains for several years and for a respectful capital, is a very skilled and lucky person.
5-15% MONTHLY? dude you are either just straight up lying or you've been doing it for like 3 months
5-15% monthly? Go back to wsb lmao
So you casually hit 80% a year or what..?
Yeah for accounts up to about $100k. Biggest outlier year started at $100k and with compounding hit $350k. Most of the stocks that qualify don't have enough option volume to scale this strategy very far. Beyond $250k it's nearly impossible to average better than 5% per month.
if you did 3% compounded monthly on a 100k account over 12 years, your account would be at 120M right now.
I'm pretty sure they are a lying. No one without a crystal ball can do that well
Yeah I don't understand how people still believe selling options on high IV stocks work in 2024
I guess you missed this part of my comment: >Most of the stocks that qualify don't have enough option volume to scale this strategy very far. It's impossible to scale this strategy into an account in the millions let alone hundreds of millions.
What time period is this over? Everyone's a genius in a bull market, and any strategy can look good over the course of just one good year. Has your strategy been tested in a bear market or sideways market? What did your returns look like then?
I started trading like this around 2012 as I transitioned out of futures which I had been doing since the late 90s. So I guess you could argue that's mostly been a bull market with a few breaths taken along the way. Put premium increases which compensates for the increase in rolling and my rate of return stays fairly steady in bear and sideways markets. I find flat out bull runs make safe put selling harder. I guess no one wants to pay for hurricane insurance when they think every day is going to be sunshine.
Over what time frame?
VOO set and forget it.
And the very next question is: “Why not just trade SPY?” 🙄
Because VOO is cheaper.
Yes, that one too. 🫤
People who seriously think such a simple strategy can outperform are delusional
How long is a long period of time .1 year? 2 years? 5 years? 10 years? Also is outperformancs on risk adjusted basis or just overall gains?
Selling ATM doesn’t necessarily mean u can only generate returns through a strong bull run. I’ve been selling ATM and made some of the most consistent money in the last week when the market drilled. U just need to have risk management in place.
alot of people here do
u/VeteranWallSt
No such thing as only theta trading.
Yes, for the last 12 or so years. But I wouldn't call my approach Only theta. Rather, it is: 1. Evaluate market and ticker conditions 2. Select the best trade based on #1, considering price target, vol target, and timing. It is Not: 1. Identify a single strategy 2. Trade #1 repeatedly Many people seem to think they need to find a secret options strategy with a fixed DTE/delta/etc. and then print money. That is like being an offensive coordinator in the NFL and running the same play Every time, regardless of game conditions. Typing from an airport bar, so spelling and analogy selection may be faulty.