Over time, I’ve tried a variety of option strategies, and found that many strategies that are supposed to be high probability simply aren’t. I’ve searched for the option strategies that work well in a variety of environments, and then worked to determine how to adjust each strategy for different situations- on entry, and in management through closing.
Each of my favorite strategies here are designed to collect premium at entry, be manageable for adjustment, and be able to close before expiration while keeping over half the premium the majority of the time. For each strategy, I’ve worked to determine the optimal entry Deltas for different market conditions, along with time to expiration. All choices are based on data.
So here is my list:
Credit Put Spread
I sell way out of the money credit/bull put spreads– Okay, this is not a glamorous choice, but in most market conditions, it makes very predictable money and is one of the best performing trades you can do. I have some pretty specific ways I go about this to keep most of my premium at fairly low risk. During bull market runs, I’ve done really well with a rolling 7 DTE put spread.
Call Backspread
I sell Delta neutral call backspreads or reverse ratio spreads for a credit. This is not a strategy that I often hear people promote. I started using it after I got tired of having call spreads blown out by bullish trends that dominate the market 80% of the time. The concept is simple- sell one call, and buy two calls of the same expiration with half the Delta. For equity indexes, this almost always results in a significant credit. The trade can make money based on price movement either up or down, with unlimited profit to the upside. The trade has a few tricks to know to avoid big losses.
Covered Call Spreads
Instead of covered calls, I sell credit call spreads to cover long equity positions. Similar to back spreads, I got tired of seeing my returns limited by calls that went into the money on stocks and index ETFs that I owned. I want to collect premium against my long equity positions, but I don’t want to miss out if the market melts up faster than my calls can decay. With a call spread, I can collect premium, and have the advantage of a covered call, but not worry that the call will eat away all my gains.
Broken Wing Butterflies and Front Ratios
There are a whole family of trades that involve setting up ratios of selling more puts than buying. These front ratio trades remove risk in one direction and decay quickly when the market stays away from the puts that are sold. To reduce risk, these trades often have an additional “broken” wing added to define risk. Among these trades that I like is the 21 day Broken Wing Put Butterfly, the Broken Wing Condor, and the 1-1-2-2 put ratio trade. For each trade, I’ve come up with timing, strike selection, and management strategies that have worked well for me over time. The Broken Wing Butterfly and Condor have worked better in bull markets, while the 1-1-2-2 has held its own even in bear markets.
Bear Market Iron Condor
I didn’t really like Iron Condors until we entered into a bear market. That’s when I discovered that selling put spreads and call spreads at the same time can be fairly forgiving. With the right management, a trader can make money on a downturn, adjust and make money with each move down. I call this the rolling Iron Condor, and I’ve worked to find the best Delta setups for different market environments.
