May 2025

+$2509

Thoughts...

When selling call/puts on over extended moves, there is no reason to get big really fast. These are low hanging fruit plays. When I get big to start on day 1, there is not necessarily enough confirmation the trade will work. MAs, PrevD hi/lo, TL breaks, pivot levels, market confluence are all pieces to add. Add most when most in favor. 

Very rarely are my first entries my one and only chance to ever get size on a trade. I will get another chance to add size. Start smaller and add to the winners dont add to the losers until they and the market begin proving themselves.

I am having a hell of a time trying to determine estiamted risk on these spread trades. It all depends on how fast it gets there. I took an L on BA that was ripping against me and loss got very large at times. But never near the max L. Same as a TSLA trade that once vol cooled down, I exited small loss. Estiamting my risk from the beginning of the trade, im not sure its really possible. My stop is set at the sold strike price, but that and delta alone does not reflect an accurate options price because of theta and IV. And Grok is no help here. Ive spent days trying to recreate formulas with nothing coming out clean. 

I think my best bet on this is to just use delta and distance from stop to determine what the options contracts would be at max and then use that as a worst case if it went DIRECTLY TO STOP RIGHT NOW knowing its probably less than that, but at worst it would be that. Using that method and looking back at past trades, it seems as if it is around a bit more than half my potential max loss on the trade.

Took a vacation last week in May, thought I would be able to get some trading in, silly idea. Whole week nothing for me. 

Spent a lot of time on spreadsheets, fine tuning and have a nice 10min morning routine going to get all my scripts run. Maybe room for improvement and more automation but for now is in a great spot.

Created SPY query history sheet. Gives me SPY green closes on D/W/M over  several dozen variables. Script has is create averages and a running log. Is a good gague to see what % chances are on SPY, how many show greater than 60% or lesss than 40%. Another trend check. 

The goal for that is to start selling puts on SPY when numbers are largerly green, (70%) across the board and very few less than 40% chances on Monthly outlooks. This can be a form of cash flow per month selling puts a month out when numbers tell me its unlikley we drop. Im waiting for more data now though I want to see how it plays out with trends and trend breaks. 

Stats

Spreads were the MVP +$4039 19/24

Swings not so great -$1530 0/4

Starting with swings, that setup did not appear much for me this month. Not muc tightness, we have rebounded hard off of bottoms with no time to build out ranges, so im just not getting much action on that. Of the trades I did take, nothing A+,  Got pretty big on AEE and LHX but neither went for me. Perhaps too big, both were in A category risk, I wrote i kept seeing things I liked, it kept giving me good add chances. Charts say stay in, all else in favor, just doesnt happen everytime. 

Im a fan of getting big and doubling down so long as market structure is good, all else still in favor, industry strong and market helping. Sometimes it works, sometimes it doesnt. Step on the gas hard when its there. Just not in the cards on those. 

Spreads were great. So far ive got a pretty good eye for this. I am certainly trading mean reversions here. Finding good tops and bottoms and checking stock history to gather data on % chances it closes green in a week is a good start. Market helps as well if we are stalling. 

Simple chart pattern breaks is my trigger. If stock has been following 9/20ma on 1 and 4 hr for weeks and now all the sudden it breaks that trend lower, theres my in. Add on pullbacks and breakdowns. 

For the most part I am betting it wont make new highs that week. I dont trade farther out than the weeklies. 

Risk

I had a few heart stopper moments with these spreads. It all worked out fine in the end but damn sometimes I got quite nervous. 

BA was my biggest loser. -$705. Max L was 2640. It was a trade that just kept blwoign up in my face.  

Flat out not a good trade. Never broke prev day low, never got under any hourly MAs, nothing special at all. A bad trade I added to so a large deserved loss.

TSLA was the big one that made me recognize I need to nail down my risk on these trades. A loss off $333 but at its worst I was down $3100. 

The trade was good. New lows, new trend breaks lower, doing things it hadnt done in a couple weeks. 

Looking at the chart, it really isnt THAT bad against me. It did break my sold strike at 350, but on a friday as I sold it a day before on thurs at 2.10, theta shoudl crush it. But IV at 80 is a big deal here. And its TSLA, strong name. At its worst the sold got to 5.70, and TSLA stock at 351.62. Only $1.62 intrinsic value. But with IV and at open, it was enough to really pop against me. (Bot 355 at 1.37 and MFE 2.72)

This is also where I discovered that NOT buying protection at next strike and skipping over one extra for more prem also nearly doubles the risk on the trade. 

TSLA closed at 349.98 that friday. that is NOT a good trade to hold. I ended up bailing on friday early and I wrote this what a stressor, the extra strike i gave is resulted in double the risk. i have seen this trade go from -800 to -200 in a minute. as of 1130 am on friday, there are way too many signs against me. above all mas, coil above HTF POC and VA, Q and SPY ripping up grinding higher, internals clearyl saying stremgth, I am having so many things against me, whej I bailed it was 3$ under strike price, but the risk just is not worht it,. I had a great week, good experiemnts and tests and do not want to give a giant chunk of it back on some crazy rip that if sustains will eliminiate the entire week. just not worth it. try again nxt week when sigsn are clearer. low hanigng ftuit. This was not it. Also TSLA IV was at 100% on friday

I was fortunate I got out with a small loss. Cooler heads prevailed and despite seeing the huge loss building, I know time is on my side and it is important to let the stock relax and watch prem drop with the pull ins. 

My risk plan is cut the trade when it breaks the sold strike. BUT if that happens 5 mins at the open on a 4$ move higher from the bell with no pb on a friday with 100% IV knowing im short the highest OI on an over ext name. I have to give it that time. Stocks rarely go up forever and yes when that 1 time comes that it does, my max L is still not something that is totally soul crushing. Will it hurt yes, will it blow my account no. Can a good week make up for it, yes. 

Ive seen time and time again when I am long an option and its at my PT and I am waiting for that PB to take profits, that waiting for the PB results in damn near a 10% loss of the option value. That now works in my favor here. 

Had 2 other losses on NVDA and GE. Both less violent than TSLA. NVDA trading above sold strike and dipped when started turning against me again. GE got above strike and trended higher all day. Again waited for that friday PB, never really got a good one, but its GE so a bit slow and didnt matter much. Only -$137 from both of those. Both exp ITM. 

GE was also one where I pushed for a mid hanging fruit. Closer strike for more prem, but didnt work out for me. 

Also discovered that when using further out strike as a hedge, it quickly becomes not a hedge at all. Loses value much faster and any pbs in favor of hedge dont help much at all. Not a big deal when trading high confidence setups, but when managing a loser, its no help at all and just an extra loss. 

All in all I created more risk formulas to better anticipate where ill be should the stock get to the sold strike price. So far overall on average I am risking $2 to make $1. Give or take some IV and market vol. I would say at worst for now its risking $4 to make $1. 

This can be better analayzed with more data to see avg mae ratios.

Max P vs Max L

I like the low hanging fruit idea. Cash flow. No home runs. Single, Single, Single, Single, Single. 

So far, Max P tends to be about 1/10th of Max L. of 24 trades my sum of Max P/Max L is 8000/56000

or roughly 1/7. The lower the fruit, the higher the ratio. The bigger prem, the lower the ratio but also lower chances it works. 

So for now I like where I am at. There are certainly some cases where I could have chosen a higher delta/higher prem and made more money and had a better RR, but the chances my WR drops increases. 

There is a big trade off when it comes to that. Need more data to get a better picture of averages. 

Final Thoughts

Overall a very good month. Plenty of new things to explore and a good looking road ahead. Ive seen it time and time again on videos, you think spreads are the greatest thing ever until that 1 major loss comes. Im keeping an eye out for it and will see how it affects the system. Again no trade so large that it ends months of progress. 

 Goals from last month.

Finish SMB Program.

    -Did not. Got most of it done, didnt watch any for a week and a half from vacation

Drill down what my strategy is when it comes to spread trades. 

    -Strike distance?

        -Discovered risk issues here. More prem yes, but comes at a cost. Lower strike hedge quickly becomes no hedge at all and I am at the mercy of action on sold option. Seems like only use when highly confident and stars are aligning. 

    -Avg Prem?

        -I only kept good thorough stats on 16 of these 24 trades. I need more. There will be some correlation on delta, IV, days to exp and option price. 

    -Avg IV?

        -So far the hgigher the better, more prem, more risk. In some cases can choose even lower hanging fruit for large prem. 

    -Over ext?

        -Mainly where IV is largest. I only traded over ext names, now will introduce consoldaiton names which I expect should show less prem to capture. 

    -Range Breakouts?

        -Above

    -Fund a call option trade?

        -Not quite there yet. Feels like I would have to get very big spreads on to fund a long call that is worth it. Risk doesnt make sense to me yet. 

Read every day and every night. M-F.

        -Mostly yes. Some nights after a shower it is just straight to bed. Long days, kids are tough, workouts are tough, trading is tough. Its hard. Per Jocko "You should be crashing into bed every night." I sure am. 

NEW GOALS

Finish SMB Program

Dig more into when its acceptable to hedge a further out strike than the next one. 

    -Confidence?

    -Something else?

Trade more! Get more Data!

Time to sell SPY Monthlies? Where is line in sand? Create Charts of Trends. 

Begin spreads out of consoldaiton. Not just Overextended. 

    -Spreads worth it?

    -Just Equity instead?

    -Supercharge? (Credit buys the Long Option)

Avg MAE Ratios

    -Avg prem

More info on opening trades at bell

    -Spread widens, tough ins, adds later on at better fills despite better prices

Revisit the following 

Drill down what my strategy is when it comes to spread trades. 

    -Strike distance?

    -Avg Prem?

    -Avg IV?

    -Over ext?

    -Range Breakouts?

    -Fund a call option trade?