Hello, I'm an option noob that wandered over from the main thread. I've appreciated reading all your option trading experiences (good and bad).
I wanted to start with some fairly "safe" options by writing weekly CC about 25-30% OTM with delta less than 0.05. Not too worried about the premiums since it would be just play money (not retired) but I definitely would not want my shares called away. Anyone else doing this? Some are doing a bit more aggressive strikes (10-20% OTM) and rolling up and out if the stock price goes up.
It seems like most people are doing BPS vs cash secured puts, from my understanding, the advantages are leverage (cash + margins) and insurance for a deep stock price drop? Is that it?
Assuming you've been through the OA education series, here are my suggestions.
Regardless of the style of trade you decide to start with (covered call, naked puts, put spreads, call spreads, etc..), do so using small enough sized positions that you could get a max loss in some sort of black swan and it won't hurt your overall portfolio. Small enough to learn from, big enough to get your attention (a single covered call with a $10M portfolio probably isn't interesting enough to keep focused and learn much).
About as close to advice as I'll come is to start with cash secured puts, and share backed covered calls. The rationale is the same in both cases - the max loss on the cash secured put is that you buy 100 shares at the put strike price. The max loss on the share backed covered call is you sell 100 shares at the call strike price.
So pick a strike in each case where, in addition to everything else you consider when choosing your strike and expiration, you are also comfortable with conducting the worst case transaction if that need arises.
The problem with spreads is that they always resolve using cash, and the dynamics are similar yet different enough from the short puts and calls that max losses can be well defined with a maximum size, and reached dramatically easier and faster (really not fun when it happens).
You can see my own starting trades back when I started, at the start of this thread. I think I sold 200 strike puts when shares were around $400. I was so worried about assignment that I went WAY overboard (compared to me today) protecting myself from going ITM and being assigned. Followed that up with some 175s. The point though is that I got started, learned some stuff by having skin in the game, and got paid to learn.
More generally avoid any sort of leverage as you get started. That includes, if possible, using no margin even if that is available. Its easy to add leverage later on as you gain experience.
I guess another question to ponder - is this something you're wanting to dabble in, or is this something that you think -might- become something you see yourself doing for years to come? If it is the latter, then whether you need a few weeks, a few months, or a few quarters to gain experience and knowledge, then who cares? Do some modestly sized trades, try different aggression levels as you learn, and think in terms of the trades generating beer and sushi money.
EDIT: And welcome! May your learning be varied, interesting, fun, and profitable.
