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SPX 1-4 DTE 6 Delta Strategy What Strikes To Target?: Part 3 of This Series

1. The document discusses strategies for writing put options on the S&P 500 (SPX) 1-4 days from expiration (DTE) targeting a delta of around 0.05 or -5%. It suggests aiming for an annualized yield of around 5% from the options premiums. 2. Alternatively, the strategy aims to target a fixed delta times the SPX volatility, reducing the delta when volatility is higher to keep portfolio risk constant. 3. Another approach is to target a fixed multiple of the most recent sharp daily drop in the SPX as the strike price, to allow for potential further declines. 4. The document also discusses using Interactive Brokers' API and libraries for

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229 views2 pages

SPX 1-4 DTE 6 Delta Strategy What Strikes To Target?: Part 3 of This Series

1. The document discusses strategies for writing put options on the S&P 500 (SPX) 1-4 days from expiration (DTE) targeting a delta of around 0.05 or -5%. It suggests aiming for an annualized yield of around 5% from the options premiums. 2. Alternatively, the strategy aims to target a fixed delta times the SPX volatility, reducing the delta when volatility is higher to keep portfolio risk constant. 3. Another approach is to target a fixed multiple of the most recent sharp daily drop in the SPX as the strike price, to allow for potential further declines. 4. The document also discusses using Interactive Brokers' API and libraries for

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SPX 1-4 DTE 6 Delta Strategy

What strikes to target?

1. Target a fixed yield. I try to shoot for an annualized yield of around 5%. I
detailed the math behind that number in Part 3 of this series: with a
leverage of about 2.5x and an annual yield of 5%, I’d generate maybe about
12% gross annual yield before losses and probably somewhere around 5%
after budgeting for the occasional put option that goes in the money.
Together with the yield on the fixed income portion of the portfolio, I’m
targeting around 9% annualized return. In any case, if the index is at
around 3,000, a 5% put option yield means your options should fetch
around $150 a year (per index multiple). That’s just under $3.00 per week,
so about a $1.00 premium Monday to Wednesday and Wednesday to
Friday and probably a bit lower than $1 over the weekend. You may have
three calendar days but only one trading day between the Friday and the
Monday close, so you have to adjust for that!
2. Target a fixed Delta. I like to stay at an option delta of around 5 or below.
(For the purists, this would be a -0.05 delta for the put).
3. Alternatively, I can also target a fixed Delta times SPX volatility. So, I
would reduce the Delta whenever stocks become more volatile, so as to
keep my portfolio risk, expressed as % or $, constant. If you recall, back in
March, we had triple-digit moves in the S&P almost every day (and 1,000+
point moves in the Dow Jones) and a VIX above 80. So, during the crazy-
high volatility period in March, I was writing puts with a delta wayyyy
below 0.05, probably closer to 0.01 to 0.02 to limit the daily volatility.
4. Target a fixed multiple of the most recent memorable daily loss. For
example, if the most recent worst daily drop in the S&P was 80 points, I’d
probably want to be at least 160 points out of the money for a two-day
option.
5. Target a fixed percentage below the current index level. For example, no
matter how low the VIX may be, I’d never want to write a put within one
percent of the current market value, at least not when I’m running this
with 2.4x leverage.

Source: https://earlyretirementnow.com/2020/06/10/passive-income-through-option-writing-part-
4/

IBKR guide: https://algotrading101.com/learn/interactive-brokers-python-api-native-guide/

A “thetagang” IB algo: https://github.com/brndnmtthws/thetagang


TWS API: https://interactivebrokers.github.io/tws-api/options.html#option_chains

Ib-insync: https://ib-insync.readthedocs.io/notebooks.html
https://groups.io/g/insync/topics

Library that pulls /ES Option data:


https://github.com/spawnaga/Tensorflow_reinforcement_learning_trade_-
ES_Options/blob/main/Trade_model.py

What to do with cash? I got BCHYX (mutual fund). It's still a CA-specific Muni fund, just a leftover from my
time there. No need to sell it yet due to massive cap gains built-in now. ABHYX might be a better choice
now, though.

I also have the following funds: BAF, BTA, IQI, MEN, MFT, MUH, NMZ, NVG, NZF.

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