I don’t pay attention to the Greeks. I will often focus on the implied volatility. I’ll watch the quote of the underlying security. I also typically sell puts with 2-3 weeks left on the contract. But I’m not really aiming to trade in and out of contracts and mixing it up with the professional traders, institutions, and algorithmic trading. I use put options instead of placing limit orders to buy the underlying shares. I’ll usually sell the contracts only after the shares were pushed down and seem to be near a ST bottom. I try to sell contracts that are about 2% of the reserved cash with a strike another 2-3% below the underlying share price. So in the worst case scenario, if I’m assigned the shares I’m long the stock for about 5% less than I would be if I had bought the shares the day that I write the put contract.
I’ll have a fluid limit order set to buy to close the positions as soon as I’m short. Day 1 I might set the buy order at around 75% of what I sold for. Then adjust it down over the next week or two. Once the contract has fallen by 75 or 80% I’ll set the limit closer since there’s little potential profit left. Inside that 2-3 week window, once the contract is off by around 75% I feel there’s usually enough cushion that the contract will still probably go to zero so I won’t chase it with higher buy limit orders if the contract is heading up. But rule #1 is that I’d like to own those specific shares.
I don’t buy puts other than to close a short position. But DJT has me thinking about it. Also, I’ve only been involved with them for about two years which has been a mostly bull market. I’ll be re-evaluating if markets get ugly. Probably selling covered calls.
I haven’t been buying calls. I’d be spending a lot of time learning and studying the Greeks if taking that position was my strategy.
