Theta Decay-Based Options Strategies

1 Selling Directionally Unbiased Options

This is a strategy based on the Law of Large Numbers and whose edge exists in Implied Volatility.

TO RESEARCH/PROVE: stocks in general do not move more than N SDs in a given span of time

• Making numerous, small trades with high probabilities of success.

• By sizing down and splitting trades, the risk of blowing up an account is mitigated.

https://marketchameleon.com/volReports/VolatilityRankings

things to consider: IV30, IV30% Rank, IV30 52-week position, volume, open interest

https://www.youtube.com/watch?v=ej_6uiQCjRE

lean more to the side of pure selling strategies when IV is high (e.g. short straddle vs iron butterfly)

2 The Wheel

A cyclical strategy involving selling cash-covered puts and covered calls of a stock that you would not mind owning.

Steps:

1. Sell covered puts at a strike you are willing to buy.

2. If unassigned, repeat 1.

3. Sell covered calls at a strike you are willing to sell.

4. If unassigned, repeat 3.