Initially I did sell puts but while the risk profile on paper is the same in real life puts are riskier. When selling calls the only thing the buyer can do is to give me money for my shares, there is no margin unless I decide to use margin. I limit margin to 5%. A situation arose during the 2008 crash when the brokerage forced me to close my put position at quite a loss. I like playing safe.
The Captain
David, unfortunately itās not quite WoW! The midpoint between 22 and 50 is 36%
**YTD**
* DJIA 12.8%
* SPX-500 23.6%
* Calls 36.0%
* NASDAQ 43.0%
A good friend, auditor, investor, and businessman always said that self employed people forget to add their time value to their cost accounting. If I deducted my time value I would be matching the S&P 500 and underperforming NASDAQ. In other words, I might as well have bought index funds. Itās not a bad performance as it would put me in the top 25% of investors. My excuse is that 2023 was a year of testing. 2024 should be better. My goal is to beat NASDAQ, the ātech heavyā index.
The Captain
Isnāt that the WHY behind Cash Secured Puts (CSP)?
CSP defines the max loss?
(The investor can ābuy to closeā before the max loss occurs.)
Selling NAKED options are a different level of risk exposure.
With a Covered Call (CC), the investor must buy the stock, which exposes her to and defines the max loss of the stock going to zer0.
(Again, she can close the position/s before expiry for a smaller loss.)
With a CSP, the cash used to secure the P is exposed to the stock going to zer0, also? Which also defines the potential max loss?
Ieā¦ isnāt it two sides of the same coin?
Iāve been selling CSPs and CCs, for āspending moneyā. Often selling CSPs until assigned, then CCs until assignedā¦ repeat in a vicious cycle.
This is popularly called The Wheel Strategy.
It is working for meā¦ so far. LOLOL.
ralph
On paper, yes! Cash secured puts have a way of pushing the investor into margin. 
The Captain
Previously I mentioned selling ITM calls to reduce the risk of capital loss. By the look of things even further ITM is warranted. It has been quite a steep learning curve. The most recent lesson was that the allure of extravagant CAGR expectation from assigned calls increases the risk of capital loss when the underlying stock crashes which is what has been happening at the beginning of this year. The cure is to update (improve? optimize?) the default selection settings. For one, lower the CAGR settings.
One of the annoying things about the Call Option Selector is the difficulty of resetting the default selection settings. Currently they are set by the Class itself. I need to move the default settings to the config.php file where they can be update and which should not be too difficult. Itās my next programming job. Maybe I should create multiple default settings, one for bull markets, one for bear markets, risk-on, risk-off, etc. Risk off favors stalwarts like VISA (V) and Ross Stores (ROST) which have no chance to compete with risk-on growth stocks.
Three calls expired worthless yesterday, two big losses one small gain. Next Friday the remaining two calls will expire. I have no intention of trading until after the Tesla earning call on Jan 24. Plenty time to update the Call Option Selector with these most recent lessons.
The Captain
Fascinating saga, but then real reality almost always is.
Thank you for keeping the revealing details coming.
d fb
Think of the option prices as a table of net present values. Youāre not going to capture unexpected value unless you have some way of selecting stocks that will, over your given timeframe, move in a particular direction.
Depending upon your leanings, technical analysis (short time frame) or fundamental analysis (longer time frames) might help. As an example, Elan over on the Mechanical Investing board has had success with options by selecting underlying stocks that have good momentum with low volatility. Take the growth rate over the last, say, six months and subtract a measure of volatility. Rank candidates by the result.
DB2
Done!
<?php
$this->config = new Config;
$this->inputTemplate = $this->config->getConfig("optionCallSelectorInputTemplate");
?>
Now the updating!
The Captain
In principle I agree and I try to do it by looking at charts and at general market conditions. The problem with the suggestions is that it increases the data collection and computational complexity and I question whether it compensates for that added complexity. It is easier to predict long term trends than short term. Most of my calls donāt exceed 5 weeks, 3 weeks are the most common. Short term prices are more of a random walk than a trend, They are much influenced by market moods and unexpected news.
As I have said before, the Covered Call Selector is handing down a bunch of unexpected lessons. The last iteration made huge promises which reality dashed. My aim is to find the golden mean between yield and risk and to find it from the information in the calls themselves as much as possible.
Consider that markets grow at around 10%. Three quarter of investors underperform the market. An investor with a 20% long term record is considered brilliant.
For 13 years, Lynch successfully managed the Magellan Fund, which generated returns of approximately 29% annually
Who Is Peter Lynch? What Is His Primary Investment Theory?.
The Warren Buffett Portfolio obtained a 9.64% compound annual return, with a 13.66% standard deviation, in the last 30 Years. The US Stocks Portfolio obtained a 10.02% compound annual return, with a 15.54% standard deviation, in the last 30 Years.
The last picks by the Selector had CAGR set between 100% and 500%. Clearly there is a lot of room to dial down the risk and still have above average yields. That is what Iām trying to find by adjusting the default settings. Imagine matching Peter Lynch at 29%. Replace CAGR setting from 100 to 500 by CAGR of 30 to 100. That should bring in lots of lower risk stocks.
Thanks for the suggestions!
The Captain
This is always the case. Increased expected CAGR (return) translates to increased risk. Always.
This is one of the things I like so much about spreads. You can literally choose ANY risk and any return you want. A recent example is the Apple bull call spread that just closed a few days ago. In April I entered into a 140/160 bull call spread with an expected ~50% potential return at full value. I chose that over many options for higher (more risky) potential return, and many options for lower (less risky) potential return. At the time, I wanted something risky, but not too risky.
I could have waited until expiration next Friday to receive the full $20 value, but I am generally satisfied with 95-99% of full value and very often place standing orders to liquidate once it hits close to full value, and that is indeed what happened in this case (value $19.90). Most people who trade call spreads are satisfied with lower percentages of full value because they redeploy the capital immediately into something that will have a higher expected return from that point. I donāt do that because I donāt trade these regularly, only a few times a year at most.
A friendly note to be ignored if not liked.
I have been down the options road. At some point it is gambling.
If treated right investing is not gambling.
Agree absolutely! Calls have limited upside, once you got most of it they are not worth holding any more.
This was going to be my second argument in favor of closing the position, not to āredeploy the capital immediatelyā but to be open to whatever opportunity arises! 
The Captain
Had you followed the discussion from the start you would know that my covered calls strategy is based on the casino model with the seller playing the role of the house and the buyers playing the role of the gamblers. You would also know that casino gambling and insurance are based on the same mathematical principle of the law of large numbers which practically insures that the house and the insurer make money provided then have certain protections in place, mainly limiting the size of the bets in the case of casinos and sharing the insurance risk by co-insurance and re-insurance in addition to limits on payouts, all various methods of limiting the size of the insured interest or bet.
Once joint-stock laws were introduced a whole lot of āadjacent possibles,ā derivatives, or emergent properties arose such as the stock market, and the plethora of financial instruments that now exist. Some are called investing, others speculating, and still others gambling. Choose your weapons!
The Captain
o o o o o
BTW, the Kelly Criterion was designed to keep gamblers from going broke. Lots of mathematics involved in finance and gambling on both sides of each transaction, be it trade or spin of the wheel.
Would long-term options be suitable? They are often available 6, 12, 24 months out.
DB2
I donāt know. The option premium has two parts, intrinsic value when ITM, and time value which decreases faster as the option approaches the expiration date. The later is my reason to prefer short term options.
I could try to find out with the Option Call Selector but it will have to wait until after I finish coding the default settings update. I started working on it this morning and itās about half way done.
An interesting proposition. Thanks.
The Captain
Not so! You are not dealing in classical odds.
You are dealing in business odds. You can not have a casino with clients dealing in business odds. There is no such thing.
The human mind reads these things very differently. YMMV
But your milage is best off in investments.
I look at it roughly like this. As long as I am holding cash (and I need to hold a lot of cash due to very high monthly expenses for now), the comparison is as follows:
With the above real-life example of a $20 bull call spread, I let it close at $19.90 a week or two before expiration. I could have let it close at $19.00 a month ago or so. So I earned an extra 90 cents over the month. Had I let it close a month ago and put the money into a 4-week treasury bill, it would have earned 5.4%, or 9 cents over the month. In my particular case, letting it run almost to expiry earned me 10 times as much. Of course, letting it run another two weeks would have earned me 10 cents more, instead of 4.5 cents in a treasury bill, so financially it would have been better to let it ride until next Friday.
In the end, like any investing, it all depends on what the alternative is. Sometimes capturing the last dollar (or ten cents) is worth it, sometimes not. But it depends on where the money will go otherwise.
Every year I open long-term option positions when they become available. Mostly bullish positions because stocks tend to go up over the long-term. And sure enough, most of the time it works out and I profit. Once in a while, maybe every 4 or 5 years, it doesnāt work out and I lose. But itās really mostly for entertainment value, and a little profit, because I only dedicate a tiny portion of my portfolio to these kinds of things. Most recently, in September, a few weeks after the January 2026 LEAPS became available, I sold a series of puts. And usually I just wait until the end when they expire worthless. Sometimes I buy them back a month or two early if I want the capital gain (short-term, gains from selling puts is always short-term regardless of holding period, unless exercised) in the previous year (2025 instead of 2026 in this case).
For a tangible example, one of the puts I sold is the Janā 26 Apple 125 put. I sold them in late Sep and in early Oct at prices between $6.25 and $6.90. The most likely outcome is that they expire worthless in January 2026 and I keep the entire premium. The second less likely outcome is that I have to buy Apple shares in January 2026 (or thereabouts) for $125/share. Either way, Iām satisfied. This, to me, is a very conservative trade and has a pretty good likelihood of success. Additionally, If between now and mid-2025, if Apple stock has a huge drop, and if this option were to trade at higher prices, I would also consider selling more of them to add to the position. Doing that has been profitable most of the time (but obviously not all the time).
Yes, time decay works in your favor when selling options. With long-term options there might be a tradeoff between slower time decay and more predictability. Maybe.
DB2