The following is my trading records for the past 4 years:
2011 closed the book on 6/28/11, +23%(186,000)
My approach is simple. Build a portfolio of 100 to 60 different companies or ETFS by selling puts. I use IB portfolio margin. I liquidated the account on Tuesday, the day before the Greece vote, because of the fear factor.
I want to try less risky strategy, like spreads. But I am wondering what kind of returns I can expect. Please share your thoughts. Thanks.
Spreads will certainly reduce the risk and volatility in your account. Yours has had wild moves. The first year must have been exceedingly painful. I see that you are profitable overall, so it's worked out for you OK.
Reduced risk and volatility also usually mean reduced returns, as well. It really depends how you set up your structures.
If you continue your current general strategy using spreads, however, you simply keep selling the current "flock" of puts on these companies and then buy ones that are further out for a bit or a lot of protection (which depends on how close the spreads are together or if you buy extra ones at the furthest OTM strikes).
If you are using 60-100 companies, you can also simply buy SPX puts for generalized (but not matching) protection against the entire group. I'm not sure how close to the money you are going on your put selling, but one possible idea would be to have SPX protection at about the same level as the distance OTM on average. To make this thought clear-- if your average put is running 10% OTM, then buy SPX puts also 8-10% OTM. That way, if the market falls 10% or more on the whole, you will be able to close the SPX puts for a significant profit as a hedge against your put selling portfolio. If you sell 500 puts for the group as a whole, you would buy a similar amount of SPX puts as a hedge. SPX puts will be generally cheaper on a per unit basis than regular stock options leaving you with a net credit overall.
Of course, any time the market moves higher, (like this week), your SPX put portfolio would get hammered, dramatically reducing your profits from put selling. That is what spread protection will do.
As you know, options give you a world of choices, and there is no free lunch.