Market Movements

^{*Weekly Return is calculated as market open of the previous Wednesday, to market close this Tuesday (yesterday); Current Level is Tuesday’s (yesterday’s) close.}

Weekly Rollout

The market had a tough start this week as rising bond yields and tariff uncertainty teamed up to send the Dow, S&P 500, and Nasdaq tumbling. Add to that Powell’s sticky inflation problem—the Fed’s preferred PCE measure ticked higher in July. With DJT insisting on easing, traders are whispering déjà vu to Nixon’s 1970s tussle with the Fed. Political pressure to juice growth backfired with stubborn inflation and market turmoil. Today’s White House/Fed tensions may not be a carbon copy, but history rhymes a little too loudly for comfort.

Meanwhile, the American consumer is putting on a split-screen performance. Spending remains resilient, powered by steady income growth, but sentiment surveys are rolling over as households grow gloomier about the outlook. There is a disconnect—money is still flowing, but confidence is cracking. And while consumers wrestle with mixed signals, IEX is pushing to launch a new U.S. options venue with a built-in “speed bump” to slow high-frequency traders. Citadel Securities argues it could distort prices with canceled or repriced quotes. Lots going on. Stay tuned and stay ready.

“Good-To-Know’s”

Let’s say your account grows at 8% per year. Divide 72 ÷ 8 = 9, meaning it would take about 9 years for your money to double. If you bumped the return to 12%, it would only take about 6 years. At a slower 4% growth rate, it would take around 18 years.

While it isn’t perfect (the shortcut becomes less accurate at very high or very low rates), it’s reliable enough for quick back-of-the-envelope math. More importantly, it drives home the power of compounding. Small differences in return rates can shave years off your timeline, making consistency and efficiency matter all the more throughout your trading/investing.

Quote(s) I Like

Thought Throttle

We option sellers know that the game is no small feat. It’s not even close to a walk in the park. The mechanics can feel overwhelming at first, and there’s usually another factor we didn’t consider that could trip us up in our trade.

Wouldn’t it be helpful if there were a simple list of “rules of thumb” to guide you as you began your journey (lol)? Here we go. Here are 7 (+ 1 bonus) things that I wish I knew when getting started.

#1: Prioritize Selecting a Quality Underlying

If you only take away one thing from this article, let it be this—choosing the right underlying is everything. The stock or ETF you choose determines the collateral required, the quality of the underlying business, and the stability of your premium income. Price affects capital commitment, fundamentals determine long-term viability, and market cap affects liquidity (bid-ask spreads).

This decision is the foundation of your trade. You’re choosing where to put your money and which businesses you want to partner with. The full scope of stock analysis can’t be covered in just one newsletter (I am workshopping something right now). For now, just stick with businesses or sectors that you believe in long-term, that have enough liquidity to be viable for options.

#2: Implied Volatility (IV) and IV Rank

Premiums rise and fall with volatility. As sellers, we want to sell when IV is high, because that’s when the market is willing to pay us more. Ideally, we find situations where the market is pricing in more volatility than we realistically expect. That way, when volatility contracts (an “IV crush”), our positions benefit.

There are plenty of tools—like Market Chameleon—to check IV levels and ranks. Over time, you’ll build a feel for when volatility looks overstretched, but at the start, stick to the data and keep it simple.

#3: Time to Expiration (DTE)

For beginners (and most of us, honestly), the sweet spot is usually 30–45 days to expiration. Why? Because this window is widely considered the most Theta-efficient. Theta, or Time Decay, accelerates as we near the contract’s expiration, but we also need enough extrinsic value in the option contract to collect a meaningful premium.

Broad strokes, 30-45 DTE options have a good balance. Yes, you can trade outside of this range, but if you’re new, keep it simple until you have a reason to adjust.

P.S. Last week’s edition was on Time Decay and Theta. Check it out below for more:

#4: Delta Selection

Delta is one of the most useful Greeks to understand. There are countless ways that it can be and is utilized (we’ll just hit the basics). Delta is, technically, the measure of how much an option’s price will change with a $1 move in the underlying stock, all else equal. If a stock increases by $1 and a call option has a delta of 70, then it can be expected that the premium on the option will increase by $0.70, all else equal.

It is also, practically, a rough probability of the contract expiring in the money. A 70 delta call has about a 70% chance of expiring ITM. A 30 delta call has about a 30% chance. That makes delta a quick shorthand to utilize probabilities—but believe me, there is much more nuance.

Broadly, though, many traders stick to the 20–30 delta range when selling cash-secured puts and covered calls, balancing premium income with room for error.

#5: Position Sizing

This one is brief, but critical. One CSP means you’re obligating yourself to buy 100 shares at the strike. If you sell five CSPs on a $50 stock, that’s $25,000 in potential stock purchases. Fine if you want and can afford that, but I am sure that you can see the danger.

A good rule of thumb is to never risk more than 5–10% of your account on a single trade. That way, even if you’re assigned, it won’t sink your portfolio.

Note: There is some grey area here, as smaller accounts would not be able to sell options using just 5-10% of their account. Use your own discretion, but absolutely make sure you understand 1) what you are getting yourself into, and 2) the importance of diversification and the risks involved when you aren’t diversified.

#6: Avoid Earnings (At First)

Earnings premiums can look tempting, sometimes even 2–3× larger than normal. But that comes with risk. Stocks can gap 10–20% overnight on a single report, blowing straight through your strike. Until you’re confident managing assignment and rolling your trades, it is usually best to steer clear of earnings trades.

#7: Favor ETFs Early (If Capital Allows)

If you can afford it, ETFs like SPY, QQQ, or IWM are great training wheels. They’re liquid, diversified, and less likely to swing wildly on a single headline. They have an inherent level of diversification.

You still collect decent premiums, but with less single-stock risk. If the higher prices of these ETFs put them out of reach, then Tip #1—picking fundamentally strong individual stocks—becomes even more important.

Bonus Tip: Never Stop Learning

This list couldn’t possibly be everything that you need to know before selling options. Obviously, you need to know what they are and how they work, which we didn’t touch on. Each of these tips stems from an actual mistake that I made earlier in my trading/investing journey.

The key is to learn from these and improve upon them. You’ll make fewer mistakes and grow to enjoy learning more complicated strategies and structures (Check out our Catalog for some breakdowns of these complicated setups).

Basically, stay humble in the appraisal of your option’s knowledge and always be open to the very real possibility that you are wrong and there is something you don’t yet know. This has been the most helpful tip for me. It allows for all of the previous tips. It is a meta skill.

Keep at it, stay humble, stay consistent, and let Theta and compounding do what they do best.

Trade Mechanics

Palantir (PLTR) has been buzzing in retail circles, and at the time of writing this, it trades at $157.09. Suppose we’re comfortable owning shares at a discount if it dips. We could sell an October 17, 2025 $140 put (~24 delta) and collect $4.70 in premium.

If PLTR stays above $140, the option expires worthless and we keep the $470 income—a 3.47% return in 45 days (~32% annualized). If it closes below $140, we’d be assigned 100 shares at that strike, but our effective cost basis would be $135.30, about 14% below today’s price. We like it either way.

2.0 Version: The Covered Strangle

If we also owned 100 shares and were fine selling at $185+ per share, we could sell the October 17, 2025 $185 call (~20 delta) for another $3.00 in premium, along with the put option we already sold ($140 Oct 17 Put).

When you combine a covered call and a cash-secured put like this, it makes a covered strangle, and brings the total premium to $770. Nice.

If the underlying expires:

• Below $140 → we buy more shares at $140 and keep the premium.

• Between $140–$185 → both expire worthless, we pocket $770.

• Above $185 → we sell our existing shares at $185 and still keep the premium.

Note: While we can live with small moves in either direction, the big swings are where things can hurt. If the stock tanks to $45 and we’re obligated to buy at $140, that’s obviously ugly. On the flip side, if it rips to $250 and we’re capped at selling at $185, we’ll be kicking ourselves. The setup might look like a “win-win-win,” but it’s more complicated than that. There’s no such thing as a free lunch—especially not in finance.

Again, this is why Tip #1 above is so important.

This is for educational purposes only—not a trade recommendation. Remember to always do your own due diligence and consult a financial advisor before making investment decisions.

Throttle Q&A

What Are Some Items to Look Out For When Evaluating the Underlying Stock?

• Investors typically buy dividend stocks when the market is going down, since the steady dividends act as a floor.

• A stock’s book value can both overstate (Sometimes you sell off assets for $0.20 on the dollar, etc.) and understate (precious metals are listed at a lower value).

• Inventories growing faster than revenues is a bad sign—buildup leads to less profitability.

• Get out of situations quickly where the fundamentals get worse but the price increases—go where fundamentals are good but the price declines.

• Look at how sales and earnings change in relation to one another—increases in earnings can be inflated through cost reduction.

• Watch out for earnings deceleration—be aware of 2 to 3 periods of material slowdown.

• A common ‘back-hand’ measurement to see a potential bull market future price of a stock is 130% x Current PE x Expected Earnings.

• Know the quality of the institutional investors along with the quantity—they make the stock move, so some ownership is important.

• Insiders may sell for a variety of reasons, but they only buy for one.

Expected Returns of Selling Options Compared To Dividends

Dividends typically provide steady, reliable income, with yields ranging from 1% to 4%, depending on the industry. They are considered lower-risk but offer more predictable returns.

On the other hand, options premiums can provide higher returns, especially in range-bound or volatile markets, as they depend on factors like stock movement and volatility. Many options sellers shoot for a return of ~2-3% a month, but due to the volatile nature of options, this is not always achieved. The returns are riskier and will vary each month.

• Dividends: Steady income, moderate returns.

• Options Premiums: Potentially higher returns, higher risk.

To All Theta Throttle Subscribers…

A lot of you have been reaching out, asking for more on stock selection tips and things to look out for. I’m considering putting together a downloadable guide that breaks down the essentials in plain English.

If that’s something you’d be interested in, let me know by replying to this email or by subscribing if you haven’t already. The more interest I see, the faster I’ll prioritize building it. And as always, sharing this newsletter with a friend who’s curious about options goes a long way in helping us grow.

And yes, this guide will be FREE.

Got any questions or comments? Feel free to reply to this email—we’d love to hear from you!

If you found this helpful, feel free to share or forward this email to anyone who might be interested! We appreciate your support.

Disclaimer

The information provided in this newsletter is sourced from reliable channels; however, we cannot guarantee its accuracy. The opinions expressed in this newsletter are solely those of the editorial team, contributors, or third-party sources and may change without prior notice. These views do not necessarily reflect those of the firm as a whole. The content may become outdated, and there is no obligation to update it.

This newsletter is for informational purposes only and does not constitute personal investment advice. It is not intended to address your specific financial situation and should not be construed as legal, financial, tax, or accounting advice, or as a recommendation to buy, sell, or hold any securities. No recommendation is made regarding the suitability of any investment for a particular individual or group. Past performance is not indicative of future results.

Options come with inherent risks. We strongly advise you to consult with a financial advisor before making any investment decisions, including determining whether any proposed investment aligns with your personal financial needs.