Most people have full time jobs that don’t involve the financial markets. Can someone manage an options portfolio and work full-time without watching the market all day? I say yes, and they may do even better than a full time trader. The reasons may surprise you.
For several years I was a full time options trader, watching positions in a bunch of accounts, adjusting every day as the markets moved. Many of my positions were short duration, which meant that I needed to stay on top of them. Much of my strategy involved rolling to avoid getting to expiration or to keep my strikes out of the money. There were lots of good reasons to spend the day reviewing every position in every account to determine if any adjustments were needed. And I enjoyed it. It was fun managing accounts that were growing and generating the income I needed.
But in 2022, I had a series of events that drained my accounts that provided my spending money. (Separately, I’ve written about my lessons learned in 2022.) I’m not yet to the age where I can take money out of my retirement accounts without penalty, and I didn’t want to get into Substantially Equal Payment Plans (SEPP) to commit to withdrawls- that’s a big topic for another day in itself. The bear market coincided with some unexpected expenses, so I liquidated most of the liquid accounts I had available at bad times. My accounts that had been providing nice streams of income lost a lot of value when I needed them most. So as the year came to a close, it was clear I needed to get a “real” job again.
Changing to a full time “real” job
In January of 2023 I started working full-time, a typical 9-to-5 job. But I still had a number of accounts to manage, a combination of retirement accounts and leftovers from my cash/margin accounts that I hadn’t completely used up. (I didn’t go broke, I just wasn’t flush enough to live off my accounts that I could draw from.) I had to have a different approach to account management- the days of full-time trading were over.
I still wanted much of my portfolio to be option-based. I’ve seen how options give me leverage and the ability to manage in any type of environment. But I knew that my approach to managing daily had to dramatically change. I couldn’t watch the market and do my job, so I needed to completely change my trading routine.
First, I decided to stop all 1 DTE and 0 DTE trades. Honestly, these had not been that profitable and were the most time-consuming positions I had been trading. It was almost like I had been trading them to keep my day completely filled with activity. If you read about my 1 DTE Straddle management approach, you’ll see that I try to take profit and adjust positions throughout the day, which is very time-consuming. 0 DTE trades are just as time-consuming for most strategies. I know some traders open a position and set up stop and profit limit orders and go about their day, but even that seemed like more than I wanted to do. So, no more expiring option trades.
Next, I moved all my shorter duration trades out in time. I was doing some 7 DTE put spreads, rolling almost every day. These were problematic in the 2022 bear market anyway, so it wasn’t a hard decision to get rid of them. I also decided to mostly stop doing 21-day broken butterfly trades. This was a harder decision, as I’ve had good success with defending these even in tough times, but I knew that I just didn’t want that responsibility to keep an eye on them.
So, I was left with positions mostly 4-7 weeks from expiration- put spreads, iron condors, covered calls, covered strangles, some 1-1-2 ratios, and some long duration futures strangles. All these trades are far enough out in time that a move during the day won’t be a huge loss or need an immediate adjustment.
Initially I thought I’d try to spend a half hour each morning when the market opened before I started my job. For a few weeks I did this, but I found that my work often required me to be available for an early call during that time, or there were urgent items that couldn’t be delayed, and that time wasn’t available. I’d miss a day, then it was two or three in a row, and I realized I needed to be able to have an approach that could go several days at a time without requiring action. But, I also noticed that missing several days wasn’t hurting my market results, especially in a choppy market.
Since almost all my trades are based on profiting from premium decay, time is my friend. I need time to pass and the market to remain somewhat stable. Getting away from the daily noise of the market up for some reason one day and down the next for another reason helped remind me that selling options is about being patient. It also reminded me that market movements are mostly noise that is statically insignificant. If I don’t react to every move, the market tends to chop up and down and not really move that much or that fast over time, which is exactly what a seller of options needs.
My new routine
With time, I’ve settled into a trading routine of doing a thorough review of all my positions about once a week. For positions in the 4-7 week to expiration window, I like to roll and adjust Delta about once a week, essentially kicking the can down the road, trying to pick up a percent or two of return on capital each time. Timing isn’t critical, but I want to keep my spreads in the sweet spot where they decay the most, with short strike’s Deltas in the high teens to low twenties. I’ve written about this in many posts that address best Deltas for put spreads.or for rolling put spreads. I’m leaving a bit of money on the table, missing the very best timing, but I’m making up for that by not over trading, which I clearly was in 2022.
Some of my longer duration trades, that are 2-4 months out, can go weeks or even a month or more without an adjustment roll. My weekly checks just make sure that they are not getting close to being tested or getting to a duration that I want to extend. My philosophy with those positions is an “if it ain’t broke, don’t fix it” approach. So, not much to do with these.
So, it takes me about an hour a week to make adjustments during market hours. I find a break in my day, or a day when I can get trades in early before my work day starts. I’ve been surprised at how manageable it all is. I’ve realized that when the day comes that I don’t need a job anymore, I will be able to manage my trades with a lot less time than I was using the last several years. I don’t plan to ever trade all day long again.
Results
The great news is that I’m very happy with my results. My most aggressive accounts have been pulling in about 10% returns each month so far in 2023, and all my accounts are handily beating the market. So, I’m very happy with my new approach. I know that the market isn’t always this calm, but I also know from 2022’s bear market that longer duration trades in high volatility have much better outcomes than short duration trades, so I’m confident that this approach would have done well in that environment, better than I did trading every day with short duration trades.
Hi Allen, I’ve just read several of your trading strategies as well as your most recent post about trading longer dated strategies and trading less due to your new job. It seems that the 2023 change has helped you realize staying away more often and letting your positions do the work is actually better than trading full time. I can relate to what you are sharing as I am also contemplating if I should find something else to do during the day other than sitting in front of my computer managing a 1dte or 0dte trade. (it might be harder to do than it seems)
In any case, I enjoy reading your posts and I find I am very much like you in your approach to trading.
Great reflection. I felt compelled to try 0DTE, as everyone; didn’t even succeed compared to 1-1-2, but even if I did I would feel the attention required just isn’t worth it. Your post is not just for those with full-time jobs, as I don’t have one of those, but I’m just as grateful to learn that I can be significantly profitable even as a ‘lazy’ options-based investor. 10%/mo? Wow!
Cool post, came across your page and it rhymes hugely to me. Following the US stockmarket consumes me in a way and I have noticed multiple times that I am not one of the very few who can predict market behaviour 😉
Your posts are interesting to read and make me think and analyze my own trades. Rather than ‘betting that stock/index X is going to drop now’ it would be a more rewarding principle to lean against that same principle by adjusting a strategy that might imply the same, but over a longer time, with time on my side. Fictive example: stock ABC might drop here OR increase by 4-10% and drop after and we are collecting premium for it.
I am going to use BWB more often and have also created a dataset to back my strategy with some more predefined guidelines to make it a bit more mechanical.
What are the best/most efficient strategies you found that are suitable for smaller accounts (below 20k)?
Cheers from the Netherlands
Mark-
Thanks for the kind words.
For smaller accounts, a trader needs underlying securities that are lower priced, so that each trade still only consumes a portion of the account. Also, indexes and ETFs can help buffer volatility in some trades.
Thank you very much for your clear and honest accounts of event and approach to option trading set out throughout your site, as well as the specifics about changes you made following 2022. I am very interested in your thoughts and approach about how to extract income from options trading accounts. Did you aim to withdraw a regular amount each month or did it vary depending on the outcome of trades in any particular month? Although this will vary enormously depending on personal circumstances, I would also appreciate your thoughts on what you might consider to be an appropriate or reasonable account size to depend entirely on options income and one where a supplemental salary from a job (part time or full time) might be needed. And finally: how much of the account should be ‘in play’ at any one time, and how much in cash in order to manage or repair losing trades?
Alex- Thanks for the kind remarks. There’s a lot of “it depends” answers to those questions.
I’d say that there really isn’t anything that produces regular income every month from options. There are strategies that win a high percentage of the time, and a trader can stay mechanical with trades like that, winning most of the time and managing losses that come from time to time. There’s always a trade-off between risk and expected return, so a trader can get more steady, smaller returns from lower risk strategies like selling covered options. As one moves up the risk ladder, higher returns are possible, but with more volatility.
Always understand the risk of an option trade. For example, selling a covered call is not the same as selling a poor man’s covered call. A trader can trade them in a way that equals the risk or makes the poor man version less risky, but few traders do. Most look to options to leverage and magnify their gains, not considering the potential downside.
How much of a portfolio to use on option strategies depends a great deal on the risk level of the option strategies being used. For example, cash secured puts and covered calls typically have less risk than owning stock outright and provide less volatility, so it becomes a question of how much does one want to be in the market. For someone on the opposite end, selling naked options, one needs to have a large portion of the account in cash or cash equivalents to use in a crunch. It’s always good to have trades where money can be taken off the table regularly, some for income and some for managing tough trading environments or opportunities when the market drops.
So plan on less return than you expect so that you have some room for error or market fluctuations. So, if you think the strategies you are executing will return 30% in a year from your portfolio, maybe count on 15%, and see if that is enough for your needs.
I’ve found that with my style of trading, I have seasons of great returns and seasons of not so great returns. I’m always re-evaluating ways to avoid the negative side and capitalize on the good side, but often these objectives cancel each other out and it gets to the point where I overthink, instead of following a mechanical plan based on what has worked for me in the past in a variety of market environments. So set rules for trading, evaluate over time how they work, and tweak them until you see they work in good and bad times. Every trader has different comfort levels with trading situations, so learning how those feelings impact results and the rules needed to force yourself to do what you know you should do when your emotions say otherwise will help you stay consistent. But if the rules make you too uncomfortable, you won’t follow them, so it won’t work. So, only trade strategies that you understand the worst case risk for and are okay with that risk and the management plan for bad scenarios.
Trading options can be a very rewarding pursuit, but it can be very difficult at times. Keep the amount being traded below the level that it is stressful to lose big.