I'm not ready to give up on BPS yet. I still think they can be done with relative safety and have a place in our toolbox. Here are the guidelines I use:
- Only opened on a strong down move (even then, trying to pick the best intra-day entry, this makes a huge difference).
- 20% OTM
- Only selling a small amount of total possible (like 20% of margin max)
- Lots of cash reserves
- 3-10 DTE
These rules have gotten me through the Elon selling crash and the growth stock/war crashes. If BPS can work in these extreme conditions, they should work if "normal" conditions ever return.
I've also abandoned weekly profit goals. I found that having this goal pressured me to make trades that were not ideal. Now, I take what the market gives me, and when there are no good setups, I sit out. No income is better than a potential loss.
That's where I'm trending towards as well when evaluating how to proceed after recovery from recent SP volatility.
It's a point
@adiggs made multiple times: the timing of the entry into a position is 50% of the success of the trade. This doesn't mean timing the market per se, just that it's wiser to sell puts (CSP or BPS, same theory) on a dip and selling calls on a rally.
This can be difficult if one's objective is a steady income no matter how the market moves, since this is contrary to any strategy in which one (for example) opens a new BPS every Thursday for the coming week (6 DTE).
It's better to wait for a decent setup (for example a down day after a down day), this greatly increases the chance of the sold options to end up OTM. At least you could tweak an income related strategy to only sell against 10% of available cash weekly (at safe strikes of +20%/+25% OTM) but upon a decent setup one opens extra positions against say 20% of cash.
This would grant a very tiny (safe-ish) income at all times and more returns once in a while to prop up the income.
Of course if no regular income is needed it could be best to wait for a good set-up every time. I think that is where I'll be going with my cash strategy.
I'm currently holding:
- stocks;
- LEAPS;
- cash, of which 75% is tied to open BPS expiring now to JAN 2024 (saved a lot by rolling).
Where I'd like to be by JAN 2024:
- stocks;
- LEAPS or not, depends on SP. I'd like to swing trade these going between ATH and huge drops.
- cash to use for CSP / BPS and wheel if puts are assigned.
With the cash I got into a mindset of "I must open positions against this cash or else I'm missing out on possible income" but given the above I believe one makes as much money or more by just waiting for opportunities.
Rarely we see 2 weeks in a row of the SP moving solely in one direction. And one can shoot for higher premiums by selling only 10 or 15% OTM after multiple down days. I should repeat that to myself whenever I think of the missed opportunities by being all in cash.
There's no rush. Slowly but surely increasing capital is better than huge swings, putting the entire portfolio on the line every time.
