Something I've migrated to in my 'assets under management' - I am aiming to maintain 30-50% of the account value as cash. My target at relatively high share prices is 50% cash. At these lower share price levels I find myself moving closer to 20-30% cash (buy when the price is low).
The idea is that as the share price goes down I want to be buying, pushing the cash % lower. As the share price goes up to higher levels I want to be selling some of those extra shares in order to bring cash % back up to 50%.
In an ideal world I'll be 50% cash the next time we go sailing off into ATH land. In reality I'll probably be below 50% cash when that happens and I'll be selling hyper aggressive cc as we go up until they get so far ITM that I want the cash to be selling puts with. Below ATH I'll gyrate between that roughly 30 and 50% cash level, hopefully earning some strike to strike improvements along with the option sale credits (sounds like the Wheel, doesn't it
).
I should add to this idea - for income generation purposes this pattern (lower and lower cash levels as shares go down, higher and higher cash levels as shares go up) has a big problem from an income generation point of view.
When shares are low (as they are now), for income generation purposes, short puts will be performing best as the share price starts heading back up (both sides perform well when shares are sideways).
Similarly when shares are high and I start raising the cash level (selling shares), its the calls that will perform well as the shares come back down.
I'll be heavier weight the side that is the most challenging to generate income with when the shares reverse. This is bad for income generation and riskier; good for strike to strike gains.
I am consciously choosing this relationship for a few reasons:
- I'll be more conservative on the side that is 'in the way' when the share price heads back towards the mid point.
- To earn a strike to strike profit I only need to be able to roll the 'in the way' side back to my midpoint successfully to take assignment and get that strike to strike gain (I'd like to roll further of course)
- Past experience tells me that I can walk this balance beam
- The strike to strike gains will be lumpy, and likely to overwhelm the more steady option sales
It's that strike to strike dynamic where gains or losses are likely to overwhelm the week to week income that has me designing around these first, and the income second. Even though the income is my focus. Heh - I also don't count any potential strike to strike gains that might occur - those are just gravy, even if they are likely to be the largest gravy boat at the table.
My present situation - I've been adding June '24 500 strike calls as the share price has gone down. I started adding some when shares were low 900s ($520ish purchase price). I added most of my additional calls in the mid 800s ($440 purchase price), and then a few more in the low 800s (the day before the drop to 730; *sigh*) - purchase price $430.
If any of my cc go ITM on a move against me, I should probably earn a strike to strike profit (in addition to any cc premiums) at a $950 share price. Some of those will be somewhat substantial - say $100. It'll take a lot of option sales to generate $100/share, especially when I'm aiming for $2-8/week.
Ideally of course I'll be able to sell those cc on the way up and never get trapped too DITM to keep them. Past experience tells me that the shares can move fast, but not that fast. EXCEPT when we're at the extreme edge of the trading range (like right now). Though I expect flat to down share price from here, I also believe that my biggest risk at the moment is to the upside. I'm selling calls but I need to be really conservative with them.
Translation - selling 820 strike calls for this week on Tuesday (4 DTE) when I like selling next week positions, this week. The calls will be on a really short leash (roll early and aggressively for strike gains) until I can sell the 950s; then I'll start getting more aggressive with the call strikes above that.
As the shares approach $1000 I will be actively closing some of these shares / long calls to get back closer to the 40-50% cash levels.
In the meantime, another leg down and I'll be turning even more cash into shares, even if that leaves me with very little to support put sales.