Do you have any questions about this strategy? Let us know in the comments
@JB-tj9mm
24 күн бұрын
Maybe some live demos of these using interactive brokers.
@coocoocachooglin
22 күн бұрын
Yes, interested in knowing more about the details of how to put on, and manage the trades.
@danielstusnick6011
24 күн бұрын
Love you guys and all the content you produce, but this one has me concerned. As a series 7 licensed former financial exec, this really is just for sophisticated investors... and while I have no concerns about you guys there are plenty of unsophisticated investors in the FIRE space that really should not play with these strategies, but might be tempted with the $1million carrot. Sorry to be a debbie downer, but having been in the business for decades I've seen too many retail investors chase strategies they didn't understand and get burned badly.
@TwoSidesOfFI
24 күн бұрын
Unquestionably, options trading is the easiest way to blow up your account.
@danielstusnick6011
24 күн бұрын
@@TwoSidesOfFI I haven’t looked at the show notes, but I would advise making some very clear and strong statements that this is a strategy that only sophisticated, experienced investors should consider. Not only for the sake of your personal liability, but also to make sure that those in the FIRE community who are pushing hard to hit their number don’t perceive this strategy as a panacea.
@ryan_loves_lamp
23 күн бұрын
Agreed, this episode is going to end in tears for some. I also strongly recommend editing in some warnings or something.
@markbernhardt6281
8 күн бұрын
@@danielstusnick6011 Anyone who survives this long video should be fine. Neophytes would be lost pretty quickly.
@jeske100
23 күн бұрын
Thanks for putting this together. Here’s a quick update about the recent market volatility: Ironically, on August 5, the situation I dreaded finally materialized. After the 12% drop in Japan, the US market opened more than 3% down. My 1DTE puts were trading beyond the stop loss target I’d normally set, even though the SPX was still well above my strikes. I decided to sit it out and it was the right decision in hindsight. Even at the daily low I still had an almost 150-point cushion to my highest strike. In the end, all puts expired worthless and I made my max profit. Also, to answer some of the questions below: I currently trade this in a portfolio of about $2.2m, so I plan to generate about an extra 3.6% ($80k) of return on top of the money I make with my equity index funds and preferred shares.
@TwoSidesOfFI
23 күн бұрын
Same for me re: Aug 5! >7% OTM (edited now that I've checked) so never came near the strike but option prices were beyond my typical stop. I also held on and that was correct here, but also a scary moment so early in my time with this strategy! -Jason
@mikesurel5040
23 күн бұрын
Gee I almost feel silly for the long response I added now since real numbers materialized, but the numbers here roughly line up with my hypothetical given more conservative expectations than I laid out. At least I was in the ballpark. Thanks for sharing all this.
@joenocera5894
23 күн бұрын
Thanks for the great episode Jason and Karsten! I am doing a somewhat similar type of strategy with the ETFs SPY and IWM. I am selling cash-secured puts, covered calls and sometimes naked calls to generate additional income. It does seem the approach discussed here requires quite a lot of money in the account. If you guys are using a rules-based approach how can the decision be made to say I am not using the stop this time? Indeed, it was the right choice, but what about next time? I also have a concern that they could be an event that wipes out or nearly wipes out the account. If there is some black swan event which comes out of nowhere and results from a low-volatility environment suddenly switching to high-volatility I could see massive losses occurring. Maybe this is something like a 0.001% probability, but it's still possible.
@likethesky
22 күн бұрын
@Jeske100 and/or @twosidesoffi :: Did the VIX not give you the ‘warning’ you speak of, prior to the 3% drop?
@TwoSidesOfFI
22 күн бұрын
It did and I was >3 SD out of the money based on it so the strike price itself was quite safe. But the quoted option price at open was quite high based on the overnight volatility.
@petew1
24 күн бұрын
Selling covered calls on exchange ETFs (different caps and international and bonds too) at 30-45 DTE with a 10-15 delta. Close out at 80% profit and roll for credits as often as possible. Aiming for 4-6% annual return on my entire portfolio and use 4% to cover our annual expenses.
@coocoocachooglin
22 күн бұрын
As you wrote, "Selling covered calls" I assume you own the underlying, which one(s)?
@matthewbarrow3727
24 күн бұрын
Just trying to figure out how $1 million can be made on a 10 cent premium on the SPY (at $500). Options are done on 100 share blocks, so each contract requires $50,000 underlying. At 3 times margin, you are talking about an underlying position of $150,000. 10 cent premium would mean $10 premium a contract. At 3 times margin, that's $30 a position. With 200 trading days in a year, $30 X 200 = $6000 a year of premium. How does one get to $1 million? I guess you could trade on $1.5 million underlying for 14 years without a single loss. The making 1% on top a year makes sense. To have 1% be a million in profit a year means you need to have traded $100 million in the underlying.
@lanchiachi
24 күн бұрын
He starts trading since 2011, and he made 1 million over these years. He tries to make $80,000 a year. This what I heard from the video.
@jeske100
23 күн бұрын
There are multiple misunderstandings. 1: I don’t trade SPY. I trade CBOE SPX. Huge difference. 2: You won't make $1m in one year with only $50k in underlying. 3: There are 250 trading days p.a., not 200. Take a $2m portfolio. Trade 15 contracts 1DTE, another 10 puts 0DTE and 15 calls 0DTE. Receive 0.175 premium on average for 1DTE (range = from 0.10 at the low end to 0.50 on good days), 0.10 for the 0DTE. After commissions, that’s $464.5 per day, or $116,125. Factor in occasional losses to get about $80,000 net. This $80,000 is in addition to the returns in the $2m portfolio comprised of stocks and bonds.
@matthewbarrow3727
23 күн бұрын
@@jeske100 These things are important to know. Seeing a title of making a million dollars without context can be a bit misleading, in that one might think that one can make a lot of money quickly. I have implemented an automated trading system which sells 30 DTE jade lizards (short strangle, and long protective call). It made 20% in 2022, and 10% in 2023. Diversified over 15 equity positions to cap max loss of a position. With options, there is a high probability of make a little profit versus a low probability of making a big loss. In my case, the 10% profit came from 2 big losses (which were capped), when Silicon Bank and Republic Bank collapsed, where my system had sold a $14.50 put, only to watch the underlying drop to $2.50 before expiry. It would have been about 20% profit without these two positions. 2023 was a year where you would see 20% drops over night due to missed earnings, etc. 22 year back testing showed that the system would work very well, but live usage over more than 2 years showed that it was still profitable but not at the level of back testing. Back testing on ETFs did not result in a profitable system, so I didn't sell options on ETFs. It took less than 5 minute of my time a month, mainly to check that the system properly closed assigned positions and opened new options positions. The problem was that I had to time my vacations to fit between options expirations. Most of my portfolio consists of stocks, where only a proportion of the account used this options selling engine as a means to diversify. I ended up shutting down this program and just opening a position in an ETF which sells calls on the inverse of the VIX, generating a healthy yield. This way, I can pretty much forget about the stock market.
@rolandchan4493
22 күн бұрын
@@jeske100 so 10 puts of SPX, does it mean you need to have $5600 x 100 (shares per option) x 10 contracts = $5.6M as margin? how can you get so much margin with $2M portfolio?
@jeske100
22 күн бұрын
@@rolandchan4493 No. I currently need around $55k in margin per CBOE SPX short-put contract. This can change over time. It can change for puts with different strikes and different expirations. But $55k is what I currently need for each 0DTE and 1DTE short put. For 14 contracts overnight, that's way less than my current capital.
@ReesesPieces81
23 күн бұрын
I would need to listen more attentively to get all the technical details right, but honestly I would not do it because I don't have Carlson's super-powered analytical brain. I would be worried of not making the correct analysis/decision when it matters. I've been excellent at index investing for 10+ years, so I'll stick to that, especially now that I'm FIREd.
@a012345
24 күн бұрын
Nice Evangelion shirt. I didn’t take Jason for an anime fan.
@TwoSidesOfFI
24 күн бұрын
Thanks! Eva is my favorite and I've got 3 or 4 shirts. But I've got lots of other faves too. What's yours?
@a012345
17 күн бұрын
@@TwoSidesOfFI Also an Eva fan (Team Asuka). I enjoy more of the older stuff, but there are so many to count. Currently watching The Hakkenden and revisiting The Patlabor movies.
@PowerfulMoneyHabits
24 күн бұрын
I have been paper trading 1DTE options for 3 months but w spreads. I trade the .25 strikes and have been very successful. Going live next month.
@inea-fijourney22
24 күн бұрын
I really like this strategy. I have been testing 0dte, 1dte and 3dte at .20 delta. Also like spreads because my account is small
@jackdguida
22 күн бұрын
I like the idea of spreads instead of stop loss orders because you don't need all the margin and don't have to worry about an extreme overnight event.
@jason4430
24 күн бұрын
Great episode and thank-you for the detailed show-notes linking to Karsten's option posts!
@TwoSidesOfFI
24 күн бұрын
🙏
@ryanlewandowski1579
21 күн бұрын
Thanks for this interesting episode. Karsten's previous posts on the topic piqued my interest, but I never took the time to dive in and really understand the mechanics of options trading. This has re-encouraged me to take look.
@blatterjr
24 күн бұрын
Maybe I'm missing it but "this option strategy" doesn't seem to be outlined anywhere in the video or on his blog post you reference. If it's there, someone give me a timestamp?
@TwoSidesOfFI
24 күн бұрын
it's well described in the video and in the blog posts in the show notes at twosidesoffi.com/options the TL;DR version: bread and butter is selling 1DTE puts on SPX, supplemented by selling 0DTE puts and calls. this is small premium daily but depending on the size of your portfolio it can be a very healthy income. that's it.
@Boba-Chica
24 күн бұрын
@@TwoSidesOfFI do you know what portfolio size would be required to make the $80k mentioned per year?
@jeske100
23 күн бұрын
@@Boba-Chica about $2m
@dagobaker
24 күн бұрын
for some reason i thought this episode was going to b about selling covered calls against 100 block shares of SPY in your retirement portfolios in a bull market like were in i dont see the risk/reward worth it... once we hit a sideways i can see a .10 to .20 delta CC being worth the risk in a bear market (its a reality people lol) more .30 to .45 delta CC.... maybe an episode on just covered calls
@jeske100
23 күн бұрын
No, it's about CBOE-traded SPX options. All naked puts, supported by a portfolio of equity index funds and preferred shares.
@MrJdlf
14 күн бұрын
Same. Seems like a lot of work/risk even if it's on either side of the market open/close. Plus at least 2M underlying? Who is this for?
@jeske100
14 күн бұрын
@@MrJdlf A few minuta at the open and close doesn't feel like a big burden. But I can see that this strategy isn't for everyone. I've done this strategy when I had a portfolio size in the low-to-mid 6-figures. It makes more sense when you reach fat-FIRE and have a large account size. You can spread the fixed cost (time trading) over a larger account. But it's not like the minimum account size is $2m. The regulatory minimum is $110,000 so you can qualify for the "Portfolio Margin" setting in your account.
@miguelcg5475
23 күн бұрын
I've doing this strategy for more than 3 years on NDX put spreads with a return of 30%/year. On 17 of July and 2 of August, I had big losses finally but I'm still 10% YTD. My portfolio has been about 80% cash.
@TwoSidesOfFI
23 күн бұрын
It’s at least a bit different if you’re using spreads. What mechanism are you using to pick strikes and at what DTE?
@miguelcg5475
22 күн бұрын
@@TwoSidesOfFI I do 250 points put spreads 1DTE at the opening collecting between 0.50-1.00 premium
@DMC8282
24 күн бұрын
Great topic thanks for covering this
@TwoSidesOfFI
24 күн бұрын
Glad you enjoyed it!
@alonsaggie
23 күн бұрын
Selling a SPX put contract at today's price requires around $560K for a single contract (100 shares). So a few questions here: 1. To trade 12 contracts, one will need a collateral (or margin) of about $6.7M - correct....? 2. If he makes about $25-$40 per contract, and there are about 150 trading days a year, the annual yield is around %0.6-%1 - a tad low IMHO.... - am I getting this right?
@TwoSidesOfFI
23 күн бұрын
That much would be for 1X leverage. Using Karsten's example with higher leverage - if you're trading at IB and want to avoid exposure fees, it's more like $130k margin per 1 DTE put so 12 contracts would be $1.56M in assets.
@alonsaggie
24 күн бұрын
Great episode. At around minute 48:00 he mentions 60% goes to long term capital gains and 40% to short term capital gains. Can you explain why 60% are considered long term? As far as I know options trading is considered as "income" and is taxed based off of your tax bracket (unlike qualified dividends).
@dukeofearlyretirement
24 күн бұрын
It’s due to SPX falling under section 1256 of the tax code, which gives it special tax treatment. It would all be short term capital gains if he was using an ETF like SPY instead.
@alonsaggie
23 күн бұрын
@@dukeofearlyretirement Wow, I didn't know that! That's a game changer I'm trading 1dte wheel strategy on QQQ, but now I think I'll change to SPX because of this favorable tax treatment. Thank you!
@jackdguida
22 күн бұрын
This was fun and educational but definitely a bit overwhelming even for someone who has traded options and understands how they work. Let's say you want to get started small, as Karsten probably did, and then scale up. How would you recommend doing that? Paper trading is fine but it's not the same as having skin in the game. Maybe selling one ODTE SPX put per day and getting a feel for it, over several weeks, then figuring out what your risk tolerance is and selling two the next few weeks? Then looking into using margin to expand what you can do if you're comfortable with it. There's definitely the possibility that someone new to options could blow up their $1M account and I wouldn't want to see that happen.
@TwoSidesOfFI
22 күн бұрын
Starting on paper until comfortable with the mechanics is smart. Learning more about options trading is also highly recommended, something I've been studying for a few years now. Fully agree that trading a single contract once you’re there is a reasonable idea as well. Sizing up isn’t recommended until you truly understand your own risk tolerance while managing your risk capacity all the way.
@DMC8282
24 күн бұрын
i paper traded uvxy sold at 60 bucks
@jorgelpolo2009
24 күн бұрын
So is ERN only committing $50K of his money to trade on average 5 days a week? If so did that yield 1 Mil from 2011 to 2024?
@jeske100
23 күн бұрын
$50k per option. About $2m for the total account.
@jorgelpolo2009
23 күн бұрын
@@jeske100 Thank you. I was thinking that you’d need over $2 Mil to make $80K per year.
@Kk-iw4ck
13 күн бұрын
What about the big volmagedy happens like we just had a few months ago 😅
@TwoSidesOfFI
13 күн бұрын
See above in the comments. Both Karsten and I made it out the other side without issue. -J
@zekeboz5533
23 күн бұрын
@jason it would be interesting to learn more about your journey with selling puts. Are you following a similar approach as Karsten OR something different? Even though it is math I can't convince the household CFO to go in at the same level that Karsten has and have to keep it small (30-50k) which limits only using stops vs having to rely on spreads due to margin limits.
@TwoSidesOfFI
23 күн бұрын
Very similar albeit with a less sophisticated risk model than he is using.
@alonsaggie
21 күн бұрын
Can you recommend any tool or do you have a spreadsheet you can share to back test this strategy?
@TwoSidesOfFI
20 күн бұрын
Many people like Option Omega for backtesting but we haven’t tried it.
@Bill-vk7fh
24 күн бұрын
The strategy seems loosely rules based. The data should be able to drive the strategy completely and thus be automated. Curious if the strategy has been back tested with other periods of time, e.g. 2000-2009 ?
@TwoSidesOfFI
24 күн бұрын
Yep. See his blog posts at twosidesoffi.com/options
@youngrc212
24 күн бұрын
Do you close your options at a certain % of profit? Or do you let them go to expiration (assuming they are profitable)?
@TwoSidesOfFI
24 күн бұрын
Nope. They either expire worthless (victory!) or they get stopped out.
@youngrc212
24 күн бұрын
@@TwoSidesOfFI I know he said he doesn't pick strikes by the delta, but it must be pretty far OTM. He mentioned $25 potential profit at one point. Is that roughly what he's targeting?
@TwoSidesOfFI
23 күн бұрын
1DTE puts are >3% OTM. He shows the distribution of this and other stats in his most recent options blog posts. Twosidesoffi.com/options
@TheDRam3
22 күн бұрын
How did this strategy do on August 5th trading day?
@TwoSidesOfFI
22 күн бұрын
I made a lot of premium on the 1DTE puts but even at 7% OTM when I sold them, was closer to the action than I’d like to be. I’ll be more conservative going forward.
@coocoocachooglin
22 күн бұрын
scroll up
@Farhancanopyone
16 күн бұрын
Definitely a PhD level investing strategy here with a huge amount of risk involved. I would advise 99% of the FIRE breathers to stay out of it.
@coocoocachooglin
24 күн бұрын
@ 2:43 he says he's selling options on the S&P 500, is the SPY or XSP or SPX? Because at the end he says he's taking advantage of the 60/40 tax rules, afaik, that's only available on XSP and SPX. If SPX, I'm not sure how to sell Calls on SPX, is that considered a naked call since you're not owning the underlying? Little unclear on that part. SPX ~5,555. Is that $555k margin collateral for 1 contract? He said he was selling multiple contracts? How many SPX contracts is he selling every day? Has he ever wrote options on /ES ?
@TwoSidesOfFI
24 күн бұрын
Yes, SPX. Calls and Puts sold are all naked. that's the notional value of the contract, not the margin required (which depends on brokerage but at IB it's 1/10 of that).
@coocoocachooglin
22 күн бұрын
@@TwoSidesOfFI Thanks, where can I go to learn more of the details of his strategy?
@wizbangdiving
21 күн бұрын
Awesome, super awesome and very informative. Many thanks.
@paulturner4419
21 күн бұрын
What’s the opportunity cost here?
@marklyons4366
21 күн бұрын
I believe none as you still hold the underlying and fully benefit from that holding. You are staking it as collateral for an additional expected return. The only opportunity cost would be in pursuing an alternate leverage strategy.
@paulturner4419
19 күн бұрын
@@marklyons4366 I think he’s selling naked puts so no underlying. So has to have cash in account for broker and opportunity cost there.
@deliajohns3166
23 күн бұрын
What platform do you use to paper trade selling options?
@deliajohns3166
23 күн бұрын
Sorry listened further and sounds like you're using Interactive Brokers.
@TwoSidesOfFI
23 күн бұрын
Yep, that's right. I found IB easy to use although many people really like Schwab's TOS platform. I'm sure there are others as well.
@juicyfruit100x
24 күн бұрын
I've loved the approach of living off dividends. Add in 45% SCHD, 10% DGRO, 25% JEPQ along with 10% VOO and 10% QQQM, and you'll average at least 4% dividend yield with a high dividend growth rate of around 6% which will beat inflation at 3%. No need for the 4% withdrawal rule, just withdraw dividends and your dividends every year will keep increasing without having to sell any shares, thus not subjecting yourself to any market risk!
@TwoSidesOfFI
24 күн бұрын
Dividends are not free money.
@juicyfruit100x
24 күн бұрын
@@TwoSidesOfFI Sure. But if you can live off dividends without selling shares of stock, you're good for life if your ETFs have a growing dividend growth rate. Doesn't matter what the stock market is doing as much. Sequence of returns risk doesn't affect my path towards early retirement and financial independence, that's why I choose retiring off dividends. Low stress path
@jeske100
23 күн бұрын
See parts 29 to 31 of my series. Dividends are no panacea.
@juicyfruit100x
23 күн бұрын
@@jeske100 That's okay. I'm 35 years old and have a $1.3 million portfolio. Living off of dividends works perfectly for me, but to each their own! Glad you have your own system that works for your personal journey.
@juicyfruit100x
23 күн бұрын
@@jeske100 Looks like the yield portfolio on your website is not what I'd setup for myself. You can explain that the 4% will end up with a higher portfolio value in most scenarios, and you are RIGHT. Id prefer living off dividends which has a much lower fail rate. Give me a consistent dividend yield and dividend growth rate combination, and I say who cares about your current portfolio value (within reason).
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