Just wondering if there are regular weekly options traders here, who sells weekly options spreads for income.
Too risky. The risk/reward ratio is terrible for weekly credit spreads. You are better off being a buyer of debit spreads, long calls, long puts.
correct.. the risk/reward is bad.. for example u risk 8K to make 200 dollars. i am doing some bull put spreads on AAPL and AMZN i know i am going to make $ for now. but inevitably.. 1 in 10 spreads comes back to viciously bite me and take away majority if not all of my profits. I have also done naked calls and puts. same story.. 1 in 10 comes and massacres you..
It's just terrible risk reward, what do you do if it goes ITM? You're going to face a huge drawdown and lock up a lot of capital if you roll it. What is your purpose on selling the spread? To make theta I would assume, in other words it's a vol bet. The best way to minimize the risks and achieve a high risk-adj return is therefore through deltahedging, but then you might as well sell the naked straddle or buy flies and hedge. I always thought buying/selling wide flies and deltahedging at X intervals is the "purest" vol bet you can find. If you want skew bets then buy/sell a straddle below the mkt and some underlyer to neutralize deltas at initiation...why mess with option spreads and iron condors for theta when there are much better and less risky positions available.
One can make money buying or selling credit/debit spreads, as well as any other option position. But if you have a decent directional edge, why not just trade the underlying, or sell puts in a stock you want to own? If you convince yourself that it's a vol/skew trade, then shouldn't the further OTM strike (the one you are long) have a higher vol than the strike you are short? If you are picking direction, while leaning on vol, why not sell a straddle and buy cheap wings.
I have a feeling lot of people see spreads as vol or theta bets rather than the directional bets they actually are. If you short a spread at say 10 delta and it gets close to the money you have massively short delta risk. You're not making 'theta' anymore because all your risk is to delta. And if you're making directional bets with a theta component, you are still better off with the naked straddle or fly hedged with some initial -/+ deltas.
I don't enter a weekly spread unless the r/r is MAX 4:1 anything more I walk away (obviously gets a little skewed with commission). I make sure the Deltas are sub .15 and I run a modified probability calc I have to make sure it is also sub 15% of achieving moneyness. I close the a spread if the loss is double the credit. Been doing this for ~10 weeks and profitable. Problem is, at a r/r of 4:1 your make ROI (if you take this out the whole year) will never be greater than 25% ROI gross. What I am attempting to do is make this 30% of my portfolio, but automated while I tweak my option buying strategy.