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EC SD | Many different approaches out there for sure, but here is what I learned in the last couple of years of put option writing:
1) Don't write puts on an equity that has no real or little intrinsic value - like companies with zero profits, massive debts, falling earnings, etc. Stick with the winners.
2) Avoid earnings releases, Fed Reserve rate change announcements, etc. or at least adjust to strikes with lower delta for these events.
3) If you want to reduce risk, then use spreads to insure your max potential loss. I did not find this approach useful for me, but it is the "textbook" way...
4) Keep the timeframes low. I like 2 weeks and under, but sometimes go to three weeks max to align to a monthly contract (when weeklies are not available or thinly traded).
5) Avoid contracts where open interest is low unless you plan to hold to expiration. For me low is under 200 contracts.
6) Avoid Delta over 20, and try for 10 or 15 instead. Make it worthwhile by choosing contracts with implied volatility over 30% else the premium is just too low.
7) If your strike looks like it will be overrun by price moving against you, then rollout to an out of the money strike right away. Don't let your contract go into the money or you will not be able to rollout without significant losses. I rarely need to do rollout, but when I do, I look for a free roll. This lowers the strike in exchange for a few more weeks. Look to exit the position as soon as reaching break even or small profit or even take a loss if things really look grim. Rollout can become a deeper hole of losses, so sometimes better to take a loss right away especially if the facts have changed in a way that invalidates your view of the stock's outlook. Also consider just keeping the premium and buying the shares when they get assigned to you. I try to avoid all of this by following the other tips in this list.
8) Ideally write puts on a significant down day of at least 2% as long as the reason for the drop is not specific to the equity you are writing puts on.
9) If you gain 50% or more of the premium in first few days, take the profit instead of waiting for more profit. Options move quickly and I find around half of the time I am able to take this early profit and move on instead of waiting / risking loss until expiration.
10) Don't be afraid to sit on the sidelines during significant bear market time periods, just patiently wait for a new bull market or at least more market stability... Perhaps switch to a covered call strategy or some other trade idea instead.
*** This is just sharing my personal experience. This is not a guide for success, or financial advice, so make all trades at your own risk. Options trading has significant risk of 100% losses or more...
Edited by FW30 2/22/2024 21:56
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Nivida
