[Teddi Knight]

Tom, excellent post. Thank you. I trade the SPY and am interested in trading the actual SPX because to the tax consequences, which you have alluded to in previous post. So I am interested in anything that will help in trading. Again, great job.

[Teddi Knight]

Hi Tom,

Thank you for a great write up of this strategy. Much appreciated! Yes, I would be interested in the “rescue” details. I believe that is the most important part of any trade: prepare for if stuff doesn’t go ones way

Thanks again,

Best
Ernst

[Teddi Knight]

New thread started here -> https://www.fullyinformed.com/members/forums/topic/spx-weekly-credit-put-spreads/

[Teddi Knight]

Sachin,

I’ve been working on an in depth post on this. If I can figure out how to do a PowerPoint and link to it, I will post it. As to the call side of SPX, statistically, it is hard to make money. Realize, the market over the long term, goes up more than down. But more so, premiums are relatively much poorer on the call side than the put side no matter the market direction. Fear vs. greed.

I hope to have something posted in tomorrow.

Tom

[Teddi Knight]

I will work on writing something up over the weekend and start a new thread.

[Teddi Knight]

I am interested as well.

[Teddi Knight]

I would like to know this as well split between the 3 big buckets that we typically see….

1. SPY/TQQQ day trading
2. Credit Put Spreads
3. Reverse Iron Condors

[Teddi Knight]

That’s an amazing result, Teddi! $700,000 gains. I have been following your SPY daytrades quite close and am wondering how much the SPY daytrades contributed to the $700K gains and how much the other trades contributed as a whole. My gut feeling says that most of the gains come from the daytrades. Am I far off?

Best
Ernst

[Teddi Knight]

I’m currently in the Dec 18 3400/3425. I entered that on Dec 11th and got $0.70 premium. I do this trade every Friday for the next Friday’s expiration so the trade is always a 1 week trade. I target the short leg to be about 5.5-6.5%+ out of the money and I always do a $25 wide spread. Depending of the value of VIX, the premiums are usually between $0.60 and $0.80. This generally yields about 2.8% return on capital at risk for one week.

For next week’s expiration (which is on Thursday and not Friday) I am looking at the short leg to be around $3,500 or $3,525.

If you would like more information on these trades and past performance, let me know and I will start a new thread so as to not hijack this thread with off topic information.

Tom

[Teddi Knight]

Alvin, you can find them under the symbol SPXW, the “W” stands for Weekly. On Fidelity the notation is for example: -SPXW201218p3500 for Dec 18 $3500 strike. I’m not sure how it is done on Schwab. I think Mark Mandel on Twitter trades on Schwab. He is familiar with the SPX. Try hitting him up on Twitter.

Tom

[Teddi Knight]

I have modified my put selling for income strategy about a year ago. Now I only sell spreads on SPX (not SPY). I will periodically sell spreads on specific stocks only if I have the intent to own the stock or add to core holdings.

There are two reasons that I only sell on SPX for income generation.

1) SPX options are “European Style Options” while options on stocks and ETF are “American Style Options”. European Style Options can be exercised only at expiration. American Style Options can be exercised at any time prior to expiration. So I never have the risk of early assignment on my SPX options. And the SPX options are cash settled so you will never get assigned.

2) In the US, SPX options are considered Section 1256 contracts by the IRS. This means that any gains made, no matter how long you held the assets, are treated as 60% Long Term Capital Gains and 40% Short Term Capital Gains. The Long Term Capital Gains Tax Rate in the US for Married, Filing Jointly is 0% up to $80,000. So there is a great tax benefit in trading SPX options.

Again, this is only for the US. I don’t think this tax treatment applies outside the US.

Tom

[Teddi Knight]

Replying for the U.S. I pay estimated tax every quarter — pay as you go — with final estimated payment due Jan. 15, 2021. If you have not paid what you owe by Jan 15, you have another shot April 15 when taxes are due. If you have not paid taxes as you go through the year, you probably have a penalty for under payment due the IRS.

[Teddi Knight]

I assume your question is addressed to both of us. in my case it is maintenance margin. I hold back cash in case I am assigned. I have never over-extended the account that I would need to borrow.

[Teddi Knight]

Thanks.

[Teddi Knight]

Teddi,
In this mornings strategy notes you wrote about over extending on margin. I have over the years seen posts from you saying 25% of the account is the max to use on margin. Is that still your thinking today?

John

[Teddi Knight]

Y’all must have portfolios in the millions if you are only selling credit put spreads that you can keep if assigned. I am in the “never want to be assigned” camp unless absolutely necessary.

I have only been doing this a few months so please pardon the naivety. With a 500k play portfolio dedicated purely to credit put spreads….I feel that this has been a constant game of margin management. I do keep some room spare ~ $100k margin buying power but if I am really not utilizing the rest of the margin buying ability to its full extent at all times I feel that the returns to be had are not much more beyond standard index funds.

I have not experienced the mega correction event like the one that happened in March….but if it did happen….wouldn’t the plan be to keep rolling the spreads out? It will be a lot of rolls but wouldn’t that be the MO? What am I missing?

Thx in advance for your responses.

[Teddi Knight]

The reduction in capital requirements alone is worth the price of admission IMHO. The power of the portfolio evaporates quick if all you are doing is naked selling.
I see them as a tool to make the money work more for you.

[Teddi Knight]

To close the loop here…the stock went up a few dollars on Monday and I closed the short put position for a small profit($240) and double dipped on the long one and sold 14 $175 puts for $1.1.

The stock has fallen again since Monday and closed at $182.4 today but I am happier sitting at a $175 short put position than at $180.

The theta is 14 cents right now and I am hoping this trade will turn green soon unless something drastic happens tomorrow or early next week

[Teddi Knight]

You can put the ticker in the search field and see the older trade alerts

[Teddi Knight]

Thanks. I found it.

[Teddi Knight]

Thank you Teddi for such a complete explanation.

[Teddi Knight]

This reply has been marked as private.

[Teddi Knight]

Hi Teddi,

I followed your trade and sold three Dec. 330 calls at $53.71 and bought 300 shares of COSTCO $382.87. What do you think will keep your (and mine) $330 call from being being assigned November 30 (the day before ex-dividend). From what I am seeing there is not enough time value in the call to exceed the special dividend and hence an excellent chance of assignment. What am I missing? Would a better approach be to buy the stock and sell the calls after everything becomes ex-dividend? Thanks for your help on this.

[Teddi Knight]

Teddi,

What are the lengths and type of the moving averages included in your chart of the SPY?

John

[Teddi Knight]

A notice came out yesterday from the court handling the bankruptcy that if you own “substantial shares” of the firm you could not sell or transfer any shares. However, they fail to define “substantial”. I own a couple thousand shares, but I do not consider that to be substantial.

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