Option Strategies I’d Use if Starting Over Again After 14 Years
A common strategy for new traders is vertical spreads, because of their affordability. That doesn’t inherently make them great strategies. There are lots of drawbacks from poor expectancy, unfavorable risk to reward ratios, and they’re difficult to adjust. These tend to be more directional plays even if they build in a buffer. They were some of my first options trades and they remain some of the most unproductive strategies I’ve deployed. That’s not to say there’s never a time for the strategy but if I were to start trading again it would be with a CSP to a CC.
If I could communicate with myself starting off, here’s how I think it’d go:
Younger Erik: But I have a smaller account and won’t be able to put many on.
Now Erik: That’s not a bad thing. Pick good products (index or sector ETFs, SP500 stocks, etc), and slow down. Theres no need for 15 verticals with $22 max profit and $78 risk. This is a good way to bleed out.
YE: They’re slow and boring. I want to make money quicker and learn more.
Now: Don’t we all. But the only thing you’re rushing into is throwing money away. CSP to a CC is a great way to learn fundamentals and limit the stupid mistakes made while learning the basics. Papertrade all the strategies you want and carefully document what works and what doesn’t for you.
YE: Papertrading isn’t real trading, I can’t learn from that.
Now: Yes you can it’ll also help teach you discipline which you’ll need to succeed. Treat the account as you would your own money. You’ll learn plenty while saving tons of money.
The biggest hurdle when first trading is ourselves. Forcing trades because it’s all that we think is accessible is a really poor reason for a trade. Aggressively save while learning via cash secured puts to covered calls in good products.
Learn to manage puts. Learn to manage calls. Understand how they react in different time frames and against different volatility. Conceptualize gamma. Experience the theta decay curve. Find out how price movement interacts with changes in volatility.
All these base lessons can be learned when trading the CSP and CC. Not to mention, my 5 primary strategies account for over 85% of my trades. Nothing wrong with learning and familiarizing with more but don’t let that distract you from getting extremely proficient at a few.