[cakndrew]

Thanks Teddi. I know you are very busy and I wasn’t expecting an immediate answer. I have read many of your articles about entering and exiting trades and I understand the concepts of it. However, on the trade that I was asking about, you entered on a down signal, and it immediately moved in the wrong direction. You didn’t close it when the signals changed. You simply held on to it through up signals as the trade continued to work against you. Then eventually the index did reverse directions and you sold out at a logical point with a profit about 40 minutes later. What I don’t understand is why you didn’t sell when the down signal proved incorrect?

If a trade goes against you do just never sell at a loss? And if the index continues to move against you just wait until the next down signal and work on averaging the trade lower until you can close at a profit?

Caleb

[cakndrew]

Hi Jim, they are within her daily SPY Hedge articles. For instance, if you look at the December 31 trades she goes into a deeper explanation on her first trade about timing based on support and resistance levels.

https://www.fullyinformed.com/members/spy-etf-hedge-trades-and-intraday-market-updates-for-fri-dec-31-2021/

[cakndrew]

Hey Deb, if you look at more of her previous IWM portfolio trades, particularly pre-December, many of them are more like 3-4 weeks out for expiration. I think she has been more cautious the last few weeks with the trades she has placed because of the volatility of the market and because of the coming of the end of the year.

Caleb

[cakndrew]

Hi Teddi, I think I may have misunderstood something about when you set up your buybacks. Do you always only set up the buyback for the short puts…not both the short and long? Is that why you always seem to go for the bigger spreads…so that the long put is fairly cheap and you can afford to let it expire worthless or sell-back for just a couple of pennies?

Do you do this so that you can profit from the potential swing down after a stock has moved up and you’ve closed out your short side?

Caleb

[cakndrew]

I learned a very valuable lesson, that cost me a lot of profit. And you say it all the time but now I have experienced it. Take profits when they are there and if there is a drop and then a subsequent recovery, close out positions at that point in time. A couple of weeks ago I could have closed out all my positions and locked in a 40% gain in my portfolio since starting in March. Instead I was greedy and didn’t close anything out. And then I watched my portfolio drop over the next two weeks by almost $45,000, reducing my gain since March to only 13%.

I have since closed most of my positions and reponed a few at lower strikes to try and recapture some of that loss. But I sure am kicking myself for only thinking of the potential upside and not thinking about the potential downside.

As far as the original trades I asked your opinion about. I now have 5 MA 320/290 Expires 12/31. 5 V 200/180 Expires 12/31. And 5 FB 330/300 expires 12/31. As these are still all at or slightly in the money, any other trades (in other companies) I place will be much more conservative until I have closed these positions.

[cakndrew]

Thanks Teddi. I’m assuming you mean sell naked puts on V? I don’t have the option level that allows for uncovered calls/puts although I could probably apply for it and get it. But currently, if I were to sell 6 contracts (3 at 200 and 3 at 150) that would use up $105,000 of my capital, which is 100% of my available capital.

I did however make some changes today. With FB above $350 at the opening this morning, I closed out my 12/17 $350 strike positions. Then when it dropped back to $342, I resold them at the $350 strike again. This was to offset some losses I took in the V holdings.

Also today, I have now lowered all my strikes in V. I have expirations now of 12/23, 12/31, and 1/21 with strikes of $200, $205, and $210.

I also dropped my $360 MA strike down to $340. By increasing my capital at risk from $9000 to $15000.

Hopefully over the next few weeks there will be some recovery in V and MA and I can close out some of the positions and use those opportunities to continue to roll out/down those with the higher strikes.

[cakndrew]

For what it’s worth, all the articles I read online about it today seemed to hold the opinion that it was a big over-reaction.

I have several positions in V that are now way in the money. With the drop this morning I decided to roll my $235 strikes out into January and down to $220. Took 2x the amount of capital but gives it now 2 full months to recover back to where it was in September and October.

Caleb

[cakndrew]

As the stocks have continued to fluctuate I have continued to try and either reduce capital at risk or reduce strike price. MA and FB have both gone up the last week so I have closed some of those positions and lowered strikes on others and rolled one of my V out.
My positions are now as follows:

MA – 2 @ 355/315 expires 12/03 – $3,127 earned
MA – 2 @ 350/310 expires 12/17 – $2,709 earned
MA – 3 @ 360/330 expires 12/17 – $2,018 earned

V- 4 @ 235/210 expires 11/26 – $2,552 earned
V – 1 @ 220/190 expires 12/17 – $859 earned
V – 7 @ 230/210 expires 12/23 – $4,6444 earned

FB – 3 @ $340/$310 expires 11/26 – $2,839 earned
FB – 3 @ 350/320 expires 12/17 – $4,948 earned
FB – 3 @ 345/315 expires 12/23 – $2,610 earned

As MA has rallied, I have reduced my risk by lowering strikes and reducing my total number of contracts. This has cost me some earnings so to offset that I have moved some of that money into V as I am hoping V will recover as well, it has just lagged behind MA.

As FB has rallied I have also reduced some risk by lowering strikes and selling some contracts. If it continues to rally, I will likely try and further reduce my risk to try and protect myself some if it drops again before the options near expiration.

Overall, I’m pretty happy with how it has worked out so far.

[cakndrew]

I certainly don’t plan on setting up more in any of these three companies except for the purposes of rolling out and/or down.

FB
2 @ 360/330 expires 11/26–earned $2,934 – Entered 1 on 9/21. Rolled out and added 1 on 10/12
2 @ 350/320 expires 11/26 – earned $2,581 – Entered 1 on 9/22. Rolled out and added 1 on 10/15
1 @ 330/300 expires 12/17 – earned $1,198 – Entered 1 on 10/22. Rolled out on 10/26
3 @ 350/320 expires 12/17 – earned $4,629 – Entered 1 on 10/4 . Rolled out and added 1 on 10/20. Rolled out and added 1 on 10/26.

MA:
3 @ 360/330 expires 11/12 – earned $2,018 – Originally entered 1 on 8/25 then added and rolled over the next couple of months
1 @ 340/310 expires 11/19 – earned $857 – Entered on 10/28 to recoup the loss on the roll out and down on one of the other MA positions.
4 @ 355/315 expires 12/03 – earned $4,112 – Originally entered 1 on 8/25 then added and rolled over the next couple of months
4 @ 350/310 expires 12/17 – earned $3,789 – Orignally entered 1 on 8/27 then added and rolled over the next couple of months

V:
5 @ 230/210 expires 11/19 – earned $2,853 – Entered 1 on 8/27. Rolled out and added 4 more over the next few weeks
4 @ 235/215 expires 11/26 – earned $2552 – Entered 1 on 9/27. Rolled out and added 3 more over the next few weeks.

[cakndrew]

Also, to maybe add a bit of information…realistically, as long as I can keep the premiums I have already earned I don’t need to add any more growth to this account until the middle of next year. If all I do is tread water for the next 7-8 months, with no gains and no losses, I will still have achieved about a 50% return on this portfolio.

So my current thinking on these positions is to wait them out. I just don’t know if I should add more money in order to lower the strike positions which lowers the price the stocks need to rise to but makes pretty big increases in the amount of capital at risk. Or, keep the strike prices and add smaller amounts of capital as necessary to continue rolling them out but not down. Which doesn’t lower my strike level risk and slowly increases my capital at risk but also continues to add additional income/growth.

[cakndrew]

Thank you for breaking it down for me. That helps a lot!

[cakndrew]

I’m just trying to understand why you were worried enough to think about switching (and did switch in retiring easy)?

I’m sure there have been many times over that FB and AAPL have dropped since you began using them in those particular portfolios. Why was this time the time you thought you might need to switch?

I’m just trying to better understand your thinking behind it because obviously you must have had a reason.

[cakndrew]

I’m curious, what is your overall goal with your investments? Are you trying to get a specific ROI? Or a specific amount of income per week? When selling puts on Monday for a Friday expiration, that usually doesn’t bring in hardly any money.
I set a probably dumb/greedy goal of trying to get a 50% ROI. I don’t really need the income from this account so my focus was more on growth. Tomorrow will be 6 months exactly since I started and I was on track to hit 25% ROI, but now with V and MA dropping so much, I’m sitting at about 20% since March. Which I’m still very happy with. Teddi always says it but it’s taken me a while to get it into my head to only trade stocks that I’d be comfortable owning. Then, when they go the wrong direction, I don’t sell out. I figure, if I would buy stocks at the strike price, then I should be ok with however far the stock falls beyond that and be ok with continuing to roll my spreads out further. But if I’m going to trade at or near the money, I need to keep my number of contracts small and keep a decent spread.

Things are looking pretty good that you’ll be above your strike price tomorrow. But it may be close…fingers crossed :)

[cakndrew]

Hey Alvin, I have a number of credit spreads in both Visa and Mastercard. I expected them to bounce back this week and I even added some as the stocks went further down. But obviously, they are not ready to move back up yet. Fortunately, I only sold 1 or 2 contracts at a time as I added on more but as it sits now they are all in the money since I sold them at the money. Probably not the smartest thing to do but I was trying to do the same thing that Teddi did with MSFT on her “bring that profit to Momma” strategy. Again, obviously poor timing on my part. However, after learning from my mistakes from trades I got shaken out of earlier this year, I only placed these trades with confidence in both stocks ability to continue to move up over time. So my plan is to just continue to roll these out, adding to profits wherever possible without bringing in too much more capital.

[cakndrew]

Sure, I have no problem sharing the stock.

I actually had two that were in a similar boat. LGIH (a large home-builder). And THO (Owner of Airstream).

LGIH – Started with a credits spread expiring 5/21. $170/$165 spread with 10 contracts. I believe when I opened it the stock price was at all-time highs of $183. It dropped as low as $164 at one point. I was able to roll it down and out to expiry 6/18 $165/$155 spread with 10 contracts. This increased my capital at risk from $5000 to $10,000 but it was the only way I could do it profitably. This trade actually JUST closed out this morning at a 50% buyback. I ended up earning about $675 total on this trade.

THO – This is the one that I am still in the money. Very similar situation. Originally expiring 5/21. $130/$125 spread with 10 contracts. I believe the stock was at $145 when I placed the trade. It fell rapidly. I was able to roll it down and out to expiring 6/18 $125/$115 spread with 10 contracts. Again, this increased my capital at risk from $5,000 to $10,000. It dropped as low as $117 last week before starting to move back up. As of right now however, the stock has recovered all the way up to $125. So for the first time in a couple of weeks, the price is right ATM. I have consistently looked at what it would cost to close it but the cost has always been way too high. Even right now with it ATM the cost to fully close the position would be around $5,000. ($4.15 mid and $5.30 ask). I have received $967 in premium. I believe earnings are released June 8th. With the premiums so high I think I will have to just wait it out, particulary until after earnings. And then I’ll look at the cost and try to make a determination about how to proceed. I still have a 50% buyback always open. But it’s a LONG ways from that number.

Caleb

[cakndrew]

I posted my original question on the first of the month. Now that the month has closed I thought I would share some final thoughts.

Thank you everyone for chipping in with questions and comments. Thanks Teddi for giving lots of feedback.

I think a break-through for me was to realize that I was afraid of assignment. And the reason I was afraid of assignment was that I had positions with strike prices that were above the support levels that I would be comfortable owning stocks at. I also realized that being assigned doesn’t have to mean the end of the world. There is one position that I own that expires June 18th. It is in the money. I found myself actually wishing that it would get assigned because then I wouldn’t have to buy back the short position. I could simply immediately sell the shares and then I would own a long put that was worth as much or more than my loss was.

So now, I still don’t want to be in the position where I get stocks assigned. But I’m not worried about it like I was before. This allows me to make more rational decisions and also let the expiry date get closer before rolling or closing. Also, since I am choosing my strike prices based on support levels that I feel the stock would either never reach in a downturn or has a high likelihood of recovering from, it leaves me less worried as well.

I am still blown away by the returns that I am achieving. But I am glad for the little 4-5% drop we had at the beginning of the month. It cost me some profits but I feel that I am a more confident investor now because of it.

The last two weeks returns have been phenomenal. And I have been able to get them with mostly large cap companies at strike prices that are at or below strong support levels and offering to buyback at 50%. I am right at a 20% ROI since starting beginning of March. Many of the profits only come $100-$200 at a time but frequently only require holding a $5000-$10000 credit spread for a few days before it gets closed out. I’m not making my plans based on continuing to get such high returns but as long as the volatility sticks around, I think the returns will be above the 1-2% per month that I’d be satisfied with.

I want to say a special thank you to Teddi and all the information and expertise you provide on this website. I know I’m still new to options selling but I think it is going to be absolutely transformational to my investment portfolio!

[cakndrew]

Hi. I too have been amazed by her profits day trading the SPY. I have tried myself over the last couple of months with very mixed results. Mostly bad results. This is due to a number of reasons and I have now settled on continuing to practice it with very small amounts of money risked and if I do take a loss then I stop day trading and start selling credit put spreads with that day trading money until I have recouped my loss.

I’ll tell you this, it is not as easy as she makes it look. It’s definitely a skill and she has stated many times before that she paper-traded this strategy for a year before ever risking real money.

Also, one other thing I want to point out. I don’t know if you can really call the money she is making “returns on investment”. So yes, you can say that she is getting 5000% returns. But that’s kinda like saying a professional poker player who won a $1,000,000 tournament prize with only a $10,000 buy-in got a 10,000% ROI. It’s not really a return on investment. It’s a highly honed skill that takes very active trading and paying close attention all day, every day, that the market is open.

Now, don’t get me wrong, I really want to be able to do what she does because it is totally mind-blowing. But I’ve come to realize that it will take a lot of time, patience, and practice. If I were you, I’d start with selling credit spreads and worry about the SPY hedge strategy as you have time. You can still earn terrific returns and the learning curve is much more gentle :)

My 2 cents!

[cakndrew]

At the time of writing that, FB was around $315. A credit spread with a strike price of 282.5. Therefore, FB would have to fall more than 11% before moving past the strike price and into the money. By protection I simply mean how much cushion there is between the stock price and the strike price.

[cakndrew]

I too am curious about the “when to roll”? I rolled two positions last week that had an expiry date of May 21st. Who knows what next week will bring but right now they are out of the money again and it looks like I rolled it out needlessly. Personally, I do NOT want to own shares.

[cakndrew]

Hi Teddi. With the up day, I was able to work on most of my trades. I just wasn’t able to simply roll-out a few of them (example: LGIH 170/165 spread – 5/21). I guess the $5 spread just wasn’t enough space to allow it to work. But, I was able to lower it to 165/155 – 6/18). This meant I was able to reduce the strike price but had to bring in additional funds by increasing the spread from $5 to $10 and keeping the same number of contracts (10). But I was able to get a decent premium on it. I did this with THO as well (moved from a 130/125 -5/21 spread to a 125/115 – 6/18 spread).

What really caught me off guard was the fact that every single one of my positions cost me to close. I know you say a lot to close profitable positions to reduce risk and increase capital. And I have no problem doing that, or even closing at a little loss. But because I placed nearly all of my trades on Friday and Monday morning and the market proceeded to fall straight from there, anything I closed ended up costing me…some of them like 3x the amount of premium I originally received.

Yesterday I had one position that was profitable (CHK) and I closed that one. Today I had several that were profitable and I closed those as well as closed several that were a loss but then placed new trades to offset the losses.

Now I’m wondering if I should have waited until middle of next week to worry about those trades that were set to expire on the 21st? I had at least two that had dropped all the way past both the long and short strike prices. Should I have given the market a little more time to recover and waited until just a few days before expiry to close or try and roll out?

Both this week and last week I had to close positions for large losses. Primarily these were in low-volume companies that were showing UP trending on the Best Bets tool but had dramatic sell-offs in a very short period of time. You mentioned earlier to look at the “speculative” put options on the Put Selling Tool and go for those with a rating of 50% or better. Can you explain, or point me to an article, that explains what exactly those dots (Aggressive, conservative, and speculative) and ratings are representing? In reading through the articles at the bottom of the pages on the tool I wasn’t really able to figure it out.

Over the last two weeks I’ve been up $8000 down $8000 up $8000 and down $8000 again. I think that has mostly been because of the stocks I have been picking off the Best Bets Tool. I thought I was being conservative by choosing strike prices around 10% off the current stock price. This was still able to get me really excellent premiums. (Often 8-10% ROI for 2-3 weeks of risk). But obviously, the downside is that I can (and did) lose much more than the premium. So maybe I just need to go even further below the current price and not try to get such good premiums? I know that most of your trades are big S & P 500 companies. But frequently you do go with the smaller companies (like ITW and WHR for example). Why do you go with those companies sometimes but not more often? What am I missing here? :)

[cakndrew]

Hi VJ

The amount earned is what I earned for the spread, after all commissions. Amount risked is essentially the max amount of loss should the options expire with the stock below the spread.

I’m actually getting totally pummelled this week. The spreadsheet you see posted has been totally changed since the time I originally posted it. I ended up closing out nearly all the positions I had. Several were for a loss, some were for breakeven and some were for a profit. By Friday (5/7) I had $100,000 of capital available for trading. With nearly all stocks down on Monday, I used up most of my available capital. Turns out that was a big mistake since everything kept going down the rest of the day Monday, then Tuesday, then Wednesday. On Monday I had nearly 8% or more on every one of my trades. That all evaporated very quickly and now I’m at an average of less than 2% protection. Which means that many of my trades are now in the money.

I am seeing the downside to small $5 spreads. They get me a higher ROI but I am now realizing that they are not easy to roll forward profitably. And all the premiums are so sky high right now that the cost of simply closing them is so much. For example, one of my $5 spreads is on LGIH, a small company that had been on the best bets list on Monday. I have $5000 risked on that one. But to close it, the price it is quoting me at the end of today was $5600. Which is ridiculous because that’s more than the cost if I simply lost everything.

I have rolled a couple successfully but already one of the rolls (QCOM) is in the money again even though I was able to roll down and out. I have also closed a couple that were small volume stocks and I couldn’t roll successfully. I took large losses on those but then recouped most or all of it by selling at the money in higher volume, more stable companies…like JNJ. (But this too is no in the money).

I also closed some for losses and instead rolled into maybe more volatile stocks (TSLA, GME, YETI). But by doing this I traded out of an in the money put into an out of the money put with a close this Friday instead of next.

Ultimately I’m just trying to get through this week and next without taking on major losses. If tomorrow and Friday are more down days, I just don’t know if I’m going to be able to get out of it without huge losses. I have about $50,000 tied up in options that expire this Friday. They are currently all out of the money. If these stocks don’t fall more than 2%-3% by end of the day on Friday, I think I might be able to figure it out.

Sorry for the long answer. I’m hoping Teddi may read this and chime in. I’m amazed at how fast things can turn around. At the beginning of this week things were looking very good. But by today, things are looking very bad :(

[cakndrew]

I guess my question for you is…what will you do if the underlying stock (AMD or TSM) continues to go down? Will you just keep rolling them out and or down until either a. the price goes back up or b. they are assigned? And if assigned…what will you do then?

I don’t like the idea of having the possibility of assignment. I also don’t like the possibility of simply rolling it out again and again and not getting any additional ROI on it. In your case, with TSM, you were able to get some additional credit. But how big is your spread? In other words, what is your total potential loss if everything goes sideways?

Caleb

[cakndrew]

UPDATE: I had a number of trades this morning that went further in the wrong direction. (One of the best bets that I entered into yesterday dropped 9%!) I had several that had expiry dates 2-4 weeks out and were down to under 2% of protection. So I did a TON of trades today. I wanted to free up capital as per Teddi’s suggestion and by the fact that some of my trades were going to cost me to close them or even to roll them. So I closed all the trades that were profitable to do so. I closed all the trades that were under 5% protection. And I closed several trades that were about a breakeven but it cleared up more capital. None of the roll-out options looked very appealing to me so I simply took losses on a number of trades. I then went in search of new trades to offset those losses, most of them being “Best Bets.”

By the end of the day I was down $3,000 on the day but break-even for the week.

However, my average protection is now 8% and I only have one under 5% (which I took on to offset a trade that I closed that only had 1% protection). I eliminated many of the 5/28 expiry dates and went with 5/21 instead. And I freed up an additional $33,000 to continue trading with tomorrow or the following week. And I’m still on track to be able to hit 20% ROI since starting at the beginning of March.

I think the lesson I have learned this week is to just close trades that are going against me sooner than later. I am getting good enough returns that I can suffer a few losses. And the sooner I can free up the money, the sooner I can get back to making profitable trades.

[cakndrew]

That will be something I need to work on. I don’t like seeing money just sitting in the account not getting an ROI. For example, I had 4 trades close today. 3 of them profitably and one of them basically at cost because the expiry date was out a few weeks. But I immediately went and entered into 4 more trades using all the freed up capital.

I guess what I could do is instead of looking for more trades to make while the market is heading down is to focus on getting better at the SPY Hedge trading.

[cakndrew]

Good question. I’ve only had to roll one or two so far. One of those closed out profitably. And the other is still in progress (my BA with the 5/28 expiry date).

I actually entered into a credit spread with KMB practically at the money a week or so ago so that I could practice rolling a trade out and see how long I could do it and keep it profitable. I got a nearly 30% premium on the $3000 at risk so I figured that I could roll it out for a year and still make a great return. But it ended up closing the trade on Monday at about 50% of the original premium.

I just ran some possible scenarios on what I might do.

My AMD spread is getting close to the strike price. At the current prices, it appears that it would be difficult to roll out and down profitably without using more capital or going out in time at the same price. It would cost me about $1800 to close it. I orginally got about $500 premium. So the loss would be about $1300. What I could do is to go ahead and take the loss of $1300 then sell another spread on a different company close to the strike price. FB for example. I could sell the 5/21 expiry, 310/305 spread, and get $1300. This option would expire 1 week sooner than the current AMD spread, would tie up $1000 less of capital ($5000 instead of $6000) and would make back the entire amount that I lost on the AMD spread. It’s certainly possible that FB could also go down and I’d have to address that issue again when that time came. But FB is rated at 55 on the Put Selling tool and is on an UP movement and it expires sooner.
OR, more likely, I would go onto the Best Bets tool and work to find one of the top rated companies on that list and see if I could sell options there on one that would get me 5-10% protection. YETI for example is rated a 100. I could sell the 5/28 expiry $80/$75 spread and get $1200-$1300 premium. And that would come with a 7% protection on a top rated BEST BETS stock.

Another one that I am close to the strike price is INTC. It looks like I could roll that one down and out to 6/18 52.5/47.5 basically at a break-even. Or I could keep the same strike price but reduce my number of options from 10 to 5.

If I needed to free up cash quickly I would hope that at least a couple/few of the 20+ trades I have open would be able to be closed at a profit or at least at cost.

Ultimately the answer is…we’ll see when it happens. I’m new to this and so have a lot to learn still. But one thing that really attracted me to selling credit spreads was that there seem to be a lot of different options to get yourself out of problems.

[Author]

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