How to Profit from Selling Options ... plus Option Plays for December 22, 2024
Put Selling Strategy
Discover how Gamma One’s proven options trading strategies can help you generate consistent returns while diversifying your portfolio. In this month’s issue, we’ll break down our top-performing trades, explain the mechanics of selling put options, and show you exactly how you can profit—even with a modest starting portfolio. Whether you’re new to options or looking to refine your approach, this newsletter is your guide to smarter, more profitable trading.
The Recap
Last month’s suggested put sales expired worthless, potentially generating up to 15% annualized returns, depending on the trades you selected. As of the end of November, our model portfolio has generated nearly 18% year-to-date — which annualizes to just under 20%. Read on to see our ideas for this options cycle.
The Current
This month, we’ll explore how you can profit from options trading in general and specifically how subscribing to this newsletter can enhance your financial outcomes.
Performance of Gamma One's Trade Ideas
Since the beginning of the year, Gamma One has consistently provided actionable trade ideas. Here's a summary of our top monthly trades and their estimated annualized returns (based on days from trade to option expiration):
January: Sell TQQQ 2/16 46 Puts at $0.56 (17.1% annualized)
February: Sell TQQQ 3/15 48 Puts at $0.61 (18.6% annualized)
March: Sell TQQQ 4/19 46 Puts at $0.65 (14.7% annualized)
April: Sell TQQQ 5/17 40 Puts at $0.72 (23.46% annualized)
May: Sell TNA 6/21 33 Puts at $0.39 (13.48% annualized)
June: Sell TNA 7/19 23 Puts at $0.26 (15.87% annualized)
July: Sell TQQQ 8/16 55 Puts at $0.68 (18.05% annualized)
August: Sell TNA 9/20 30 Puts at $0.32 (12.17% annualized)
September: Sell TQQQ 10/18 56 Puts at $0.72 (18.77% annualized)
October: Sell TQQQ 11/15 59 Puts at $0.91 (22.52% annualized)
November: Sell TQQQ 12/20 57 Puts at $0.77 (15.4% annualized)
Our model portfolio, which executes the TNA and TQQQ trade ideas described in this newsletter, has achieved a year-to-date return of 17.98%. As of now, the portfolio’s value stands at $88,932, reflecting its market value, including open positions.
Note: The projected annualized returns outlined above are calculated based on the number of days remaining until the option's expiration. This methodology ensures a standardized comparison of potential returns across different trades, regardless of their duration.
Understanding Put Options
A put option provides its buyer the right to sell an asset at a specified price, often as a hedge against downside risk. As a seller of puts, you assume the obligation to purchase the underlying asset at the agreed strike price if assigned. For this, you earn a premium, which you retain regardless of whether the obligation is triggered.
For example:
If you sell a put with a $35 strike price and the underlying asset trades at $31, you would be obligated to purchase it at $35.
Conversely, if the asset trades above $35, the option expires worthless.
Again, in either scenario you retain the premium.
Executing a Put Sale
Selling puts requires sufficient cash to cover the potential purchase of the underlying asset. For instance:
If the strike price is $46, you need $4,600 in your account for one contract (100 shares).
Using January’s trade as an example:
Place an order to "sell-to-open 1 TQQQ 2/16 46 Put" at $0.56.
You’ll receive $56 in premium (100 shares x $0.56) less commissions. At Schwab, commissions and exchange fees for one contract total $0.66, leaving you with $55.34 in net premium.
At expiration, if the underlying trades below $46, you purchase the shares at the strike price. If it trades above $46, the option expires. In both cases, you keep the premium.
The Value of Gamma One
Gamma One’s subscription is $49/month or $295/year.
Using this year’s trade ideas (including December’s trade idea below) as a baseline, a $6,500 account could execute all the recommended trades, generating $752 in gross premiums. After commissions ($9.24 for 14 contracts, since you could trade 2 contracts in July and September ), your net profit would be $742.76. Deducting the subscription fee, your net gain would be $447.76, equating to a 6.9% return on $6,500.
With larger portfolios, returns scale proportionally:
$13,000: $1,461 (11.2% return after commissions, fees, and subscription)
$19,500: $2,516 (12.9% return after commissions, fees, and subscription)
$26,000: $3,462 (13.3% return after commissions, fees, and subscription)
Note: The returns mentioned above are calculated based on the maximum deployment of cash available in the account for selling options. These figures are slightly lower than the projected returns in the Performance section because, in practice, it’s challenging to fully utilize all the cash in your account at any given time. To optimize returns and make more efficient use of idle cash, we recommend investing in a money market fund, such as SWVXX, which is currently yielding 4.34%. This approach allows you to generate additional income while maintaining liquidity for future trades.
Is Gamma One Right for You?
For smaller portfolios, the returns may not justify the subscription. However, for those trading with $13,000 or more, Gamma One offers an attractive income-generating strategy that provides diversification and consistent results.
If you’re ready to enhance your options trading strategy and generate reliable returns, subscribe to Gamma One today and unlock your portfolio's potential.
The Trades
And now, the moment we’ve all been waiting for … the trade ideas I’m considering this month:
Sell-to-open TQQQ 1/17 65 Puts at $1.03 for an estimated 23.1% annualized.
Sell-to-open TNA 1/17 33 Puts at $0.32 for an estimated 14.2% annualized.
Sell-to-open QQQ 1/17 480 Puts at $2.35 for an estimated 7.15% annualized.
As always, I include the QQQ ideas for those who don’t have access to trading options on triple ETFs like the TNA or TQQQ.
“What good is the warmth of summer, without the cold of winter to give it sweetness.”
— John Steinbeck
What I Do in General
I typically employ a 50-50 mix of TNA and TQQQ put sales in a portion of my account and implement the Global Tactical Asset Allocation (GTAA) strategy in the remainder. You can choose the combination of put-selling, GTAA, and other portfolio strategies that works best for you.
Background
It's important to understand the nature of these ETFs in order to understand their behavior in the market.
TNA is a triple ETF that tracks the Russell 2000 index, meaning its daily movements are three times the magnitude of the Russell's daily changes. For instance, if the Russell 2000 goes up 1% in a day, TNA would experience a 3% increase. This “amplification” applies to both upward and downward market moves.
Similarly, TQQQ is a triple ETF that mirrors the NASDAQ 100 index, exhibiting comparable behavior to TNA. Its daily fluctuations are three times the NASDAQ 100's daily moves.
While TNA and TQQQ offer substantial potential returns, it's worth noting that some brokerages may not permit options trading on triple ETFs or may require a higher level of option trading authorization, due to their leveraged nature. Therefore, I include QQQ in my analysis.
QQQ is a “regular” ETF that tracks the NASDAQ 100 index without the triple leverage aspect. By incorporating QQQ, you can accommodate situations where options trading on triple ETFs is restricted or requires additional permissions.
For more information on our put-selling strategy, visit our strategy page.
Disclaimer
It's always important to conduct thorough research and analysis before engaging in any investment strategy. It's also important to know that trading options involves risks, and the profitability of a trade depends on various factors, including market conditions, individual circumstances, and the behavior of the underlying asset. While the outcome of these trades may have been favorable in the case illustrated in this newsletter, it's crucial to thoroughly understand the risks and potential rewards of options trading before engaging in such activities. Please refer to our full disclaimer and review the Characteristics and Risks of Standardized Options document.
Next Steps
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