I’ve written many times about the best premium selling strategies and how it makes sense to take advantage of a holiday. Monday of course is Memorial Day, and along with enjoying a nice BBQ we’ll have an extra day of decay to enjoy as a premium seller. But the challenge here is which name(s) to sell premium, and how do we accomplish this with market volatility already so low?
It’s kinda tricky, but I look for chart setups prior to making the trade. I also look for some good premium that can decay nicely with a move in my direction. The ‘fairly easy’ trade is finding something with a bit of ‘juice’ out of the money and selling that choice. Naturally, I will use spreads rather than selling naked calls or puts, which put me at risk of substantial losses.
A great example for this weekend would be simply selling weekly spreads expiring May 30. We would do this no later than today, May 23. A couple of names I have on my radar include: BIDU, GOOGL, HLF, SPY, IWM and AMZN, to name a few. My approach would be to sell out of the money put spreads on stocks like GOOGL, BIDU, AMZN or HLF – the choice for me would be a 1-1 risk profile (for example, collect 2.50 for a 5 dollar spread). For BIDU, it might be selling the May 30th 170 put, then buying the May 30th 165 put, thereby defining my risk. This is a bullish/neutral play.
As for the SPY and IWM, I would sell 1-2 strikes out of the money call spreads (bearish), and while the premium is not huge they should collapse nicely after the three day decay, and if there is a big push higher I suspect my short put spreads will collapse more than the loss I would take on these two bearish plays.
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Bob Lang has been managing private options trading accounts for clients since 2004 and providing subscribers with guidance on trading options for income at Explosive Options since 2011.
