SteadyOptions is an options trading forum where you can find solutions from top options traders. TRY IT FREE!

We’ve all been there… researching options strategies and unable to find the answers we’re looking for. SteadyOptions has your solution.

Make 10% Per Week With Weeklys?


Question from a reader: What about trading the weeklies (naked puts and calls)? The time span is very short and if you are more conservative, you can skip the weekends and start on Monday and bet on about 4 days. You can still get about 10% return per week with very little risk.

Good question.

 

When I trade Weeklys, I do start the trade on Monday and typically exit Wed or Thurs. I look to earn 30 to 40 cents on a 5-point index iron condor. The initial premium tends to be in the vicinity of 80 cents.

 

These options are reasonably far OTM. However, the sales are not naked short like yours. The fact that you prefer to sell naked options changes the risk profile:

  • You do not buy protection, so your short option is much farther OTM than the one I sell. That increases the chances you will have a profitable trade.
  • Your potential loss is gargantuan. I agree that it will not happen often, but in my opinion, it happens often enough to make the sale of naked options too dangerous.

If you do not get overconfident and trade this strategy in small position size, then it can be viable for the account of an experienced trader. Why experienced? Because risk management is the key to the trader’s success.

 

The trade

 

If we sell a low-delta, far OTM option, collecting 10% of the margin requirement; or, if we sell a 5-point iron condor for $0.50 – then we have an opportunity to earn that 10%.

 

To earn 10%, we must allow the options to expire worthless. That involves extra risk because each day comes with the tiny possibility of market-moving news.

 

I know that works for many traders, but I never do that. I prefer to eliminate all risk one or two days early and avoid overnight risk for that extra day. So I would be happy to pay 20 cents in the above scenario, reducing profits to a still very acceptable 6% before commissions.

 

Risk

 

We can look at risk as the probability of losing money and I agree that the probability is well on our side.

 

We can also consider risk to be the money at risk, or the sum that could be lost. That is how I prefer to think about risk.

 

From your perspective, risk is low. From mine, it is very high. So is this high risk or not? The answer must be an opinion based on fact, but remains an opinion. That means intelligent people can disagree.

 

For me, short-term options come with far too much negative gamma. Translating that to English for the newer option traders: When we sold an option or spread that looks and feels ‘safe’ because it is somewhat far OTM, when time is short, it does not take much of a move in the underlying asset to push that short option ITM. And that is the high risk of which I speak.

 

When we collect a small cash credit, the potential loss is high. The problem is that too many rookies traders do not know how to react. Some exit far too early in a panic. Others sit frozen with inaction and wind up taking the maximum possible loss.

 

Earnings Potential

 

If you can earn 10% per week and compound those earnings, after one year, $1,000 would become $142,000. I’m sure do not expect to win every week, but I hope that you recognize that it is impossible to earn such reruns with low risk.

 

My conclusion is that your plan is fine for the experienced, disciplined trader who is skilled at managing risk. However, it is far too dangerous for the inexperienced trader.

 

 

Related articles:

 

 

Want to learn how to reduce risk and put probabilities in your favor?


Start Your Free Trial

 

What Is SteadyOptions?

Full Trading Plan

Complete Portfolio Approach

Diversified Options Strategies

Exclusive Community Forum

Steady And Consistent Gains

High Quality Education

Risk Management, Portfolio Size

Performance based on real fills

Try It Free

Non-directional Options Strategies

10-15 trade Ideas Per Month

Targets 5-7% Monthly Net Return

Visit our Education Center

Recent Articles

Articles

  • How To Start: Options Basics

    Today might just have the smallest gap between Wall Street and Main Street we’ve ever experience.  We’ve come a long way when it comes to common retail traders access, affordability of trade commissions, options trading education, research and analysis services, and, finally, some progress in accessibility of technology for options traders.

    By Drew Hilleshiem,

    • 0 comments
    • 72 views
  • Investors Are Not As Smart As The Media Thinks

    Over the last decade there has been a substantial rise in proclamations such as “investment advisors are useless,” “manage your own assets,” “don’t pay for financial advice,” and other similar sentiments. 

    By cwelsh,

    • 0 comments
    • 98 views
  • Should You Close Short Options On Expiration Friday?

    Options traders spend a lot of time trying to figure out the perfect moment to open a trade; but little attention is devoted to the other side of the transaction. When should you close? This applies equally to long and short positions. However, one aspect of short timing concerns expiration Friday.

    By Michael C. Thomsett,

    • 0 comments
    • 289 views
  • 8 Strategies For High Volatility Markets

    Trading in high-vol environments requires a different approach from low-vol markets. Here are 8 strategies to improve your trading and help you to survive in high volatility markets. They are very different from strategies in low volatility environment.

    By TFCAB,

    • 0 comments
    • 146 views
  • Selling Options Premium: Myths Vs. Reality

    Selling Options Premium refers to certain set of strategies that involve net selling of options, as opposed to buying premium where you are net buyer of options. There are a lot of myths and misconceptions about Selling Options Premium. This article will explain the basic concepts and debunk some of the myths.

    By Kim,

    • 0 comments
    • 621 views
  • Combining Momentum and Put Selling (Updated)

    In February of 2017, I wrote an article about combining together the concepts of momentum and put selling. You can find that article here as prerequisite reading. With this post, we'll look at how the strategy presented has done since then, along with some additional implementation ideas.

    By Jesse,

    • 2 comments
    • 462 views
  • Options and Invisible Risks

    Entry and exit timing is crucial to successful options trading, without doubt. However, one form of risk not often acknowledged is the risk of taking too many actions, too soon, and for the wrong reasons.

    By Michael C. Thomsett,

    • 0 comments
    • 494 views
  • The Volatility Option Trade In Alibaba

    This is why you have a Trade Machine membership. We can ride the evergreen patterns, and we have, for years. But when the market shifts, we need a minimum amount of data to adjust, and succeed -- now we will. This is our time.

    By Ophir Gottlieb,

    • 0 comments
    • 722 views
  • James Cordier: Another Options Selling Firm Goes Bust

    On November 1, 2018, a money manager named James Cordier from OptionSellers.com published an article on Seeking Alpha named Option Selling Opportunities So Good They're Scary. To me, this title alone would be enough to completely discredit the author and not trust him with my hard earned money.

    By Kim,

    • 10 comments
    • 4,934 views
  • Do You Have a Written Investment Plan?

    Meb Faber recently polled his twitter followers, and found that only about 25% have a written investment plan. Your investment plan should be based on your willingness (risk tolerance) and need (required rate of return to meet your long term goals) to take risk. 

    By Jesse,

    • 0 comments
    • 534 views

  Report Article

We want to hear from you!


@Mark Wolfinger Great article.  I love your writing style, especially "The answer must be an opinion based on fact, but remains an opinion. That means intelligent people can disagree."  I wish more people had that belief in American politics!

Share this comment


Link to comment
Share on other sites


Your content will need to be approved by a moderator

Guest
You are commenting as a guest. If you have an account, please sign in.
Add a comment...

×   Pasted as rich text.   Paste as plain text instead

  Only 75 emoji are allowed.

×   Your link has been automatically embedded.   Display as a link instead

×   Your previous content has been restored.   Clear editor

×   You cannot paste images directly. Upload or insert images from URL.

Loading...

Options Trading Blogs