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

Markets are teetering on the edge of indecision this week as investors navigate softening economic data and rising geopolitical tensions. Escalating friction between Iran and Israel has added a new layer of global uncertainty, while U.S. retail sales dipped 0.1% in May, signaling a cooling consumer. Despite the mixed signals, the Fed is expected to stay put—there’s a 99.9% chance rates remain unchanged at today’s meeting (June 18th). The S&P hovers near its highs, but with more caution than conviction.

Meanwhile, Amazon’s CEO offered a friendly reminder that generative AI might gradually edge out white-collar roles—nothing like a productivity boost with a pink slip. Add in the end of the pre-tariff buying spree, and we’re seeing a slowdown in retail that hints the consumer may finally be tapping the brakes. Altogether, it’s a market marked by hesitation—watching the Fed, wary of headlines, and walking the tightrope between fear and greed.

“Good-To-Know’s”

For example, if you invest $1,000 at a 5% annual interest rate, assuming simple interest, you'd earn $50 a year, every year. After three years, you’d have made $150 in interest, bringing your total to $1,150. Contrast this to compound interest—instead of just earning on your original $1,000, you also earn interest on the interest you’ve already made. After the first year, you’d still have $1,050. But, in the second year, your 5% return is based on that $1,050, not just the $1,000. After three years, you'd end up with around $1,158 instead of $1,150.

It may seem like a small difference at first, but over longer periods—like 10, 20, or 30 years—the gap becomes enormous. That’s why compound interest is often called the most powerful force in investing: it rewards patience and consistency over time.

Keep reading for a table that illustrates the power of compounding in the Thought Throttle section.

Quote(s) I Like

Thought Throttle

2%—This is the monthly targeted return for many options sellers.

This may seem unattractive compared to the 20%, 30%, 50%, or even 100+% returns that can be achieved when buying options. But, while it is less attractive on the surface, selling options comes with at least one notable benefit. It’s far more consistent—and consistency is King.

Consider this table:

The table illustrates how seemingly small monthly returns can grow into double-digit yearly gains— even exceeding the average return of the S&P 500 in some cases. It’s a reminder that consistency, not flash, is what drives long-term wealth.

If you can maintain and achieve the coveted consistency, you can get to a point of income replacement. Assume you make $50,000 a year, or ~$4200 per month. If you are selling options and consistently achieving monthly returns of 1.5%— let’s assume 2% is too high a target—income replacement can be achieved with $280,000.

Distributing your premiums received will subject the portfolio to all of the benefits of simple interest. But if you were to not distribute any income, allowing compounding to do its thing, you would grow the $280,000 faster than you could even expect.

This illustrates the account value at the corresponding monthly return percentage and number of years for which the return was received.

As we can see, there’s utility in incremental and consistent improvements—in fact, the results can be shocking. We must note that this table doesn’t account for taxes, any distributions, the law of diminishing returns, capacity constraints, return drag, position sizing constraints, etc., along with assuming that the return is achieved every single month.

There is certainly nuance and limitations with the table—especially the longer the time horizon that is used—but the point should remain: seemingly small, yet consistent returns should not be underestimated.

We should also mention and consider the role that this consistency plays on your mentality and psyche when trading. Unlike speculative strategies that involve long losing streaks and the occasional home run, selling options offers more frequent small wins.

This positive feedback loop reinforces good habits—discipline, patience, position sizing—and strengthens your ability to stay in the game long enough for compounding to do its job. Don’t underestimate this psychological advantage.

Consistency wins out over excitement.

How to Achieve these Consistent Returns?

Definitely check out our previous editions that cover different structures and strategies. Here’s a quick list of a few strategies and structures to begin with that are focused on the sale of options.

Cash-Secured Puts (also covered in the Trade Mechanics section) — This is a neutral-to-bullish strategy that involves selling a put option and setting aside enough cash to buy the stock if you are assigned. You are paid a premium upfront for taking on this potential obligation, and if the stock stays above the strike price, you keep your ‘secured cash’ and the premium received.

If it falls below the strike price, you buy the stock at the strike price. This is such a powerful setup because you can receive a premium for potentially buying a stock you want at a discount. This is one of the most commonly used strategies, and an absolute ‘must-know.’

Covered Calls — A covered call can be entered when you own 100 shares of a stock and sell a call option against the owned shares. You collect premium upfront and agree to sell your shares at the strike price, particularly if the stock rises above the strike. This strategy works well in flat or mildly bullish markets where you don’t expect massive upside.

This strategy entails the risks of owning a stock, but it also has the risk of missing out on gains. Once you sell a covered call, if the stock rises above the strike price, the additional gains are no longer yours. Check out last week’s edition, which covers this further.

Covered Strangles — This combines a covered call with a cash-secured put on the same stock. You collect premiums on both sides while owning the stock and reserving cash to buy more. It’s ideal when you’re neutral to bullish and comfortable owning more shares or having your existing ones called away—just make absolute sure you're okay with both outcomes.

Vertical Credit Spreads — A credit spread (like a bull put or bear call spread) involves selling one option and buying another further out-of-the-money option of the same type and expiration. You receive a net credit upfront and have defined risk. These are directional bets (bullish or bearish) with limited profit and limited loss, often used for higher-probability trades with clear risk parameters.

Vertical credit spreads seem complex, since they involve multiple legs, defined strike distances, expiration management, etc., but they offer a powerful balance of risk and reward. They become a go-to strategy for generating consistent income with clearly limited downside—worth the learning curve, especially for traders who value precision and probability

Don’t Go It Alone

Join the journey each week as we break down option-selling strategies, structures, and subtle tricks that can sharpen your edge. If you’re finding value, share this with someone it could help. Spread the info—good habits (and good trades) are better when passed on.

Trade Mechanics

Let’s use Palantir (PLTR) as a hypothetical example. Assume you believe it’s a strong long-term candidate based on its AI exposure, government contracts, and overall trajectory—and for the sake of the example, you're willing to overlook its ~600x PE ratio. We’d like to own the stock, but prefer to buy it at a more favorable price than where it’s trading currently ($137.63).

PLTR has a support level around the $120/$125 mark, which lends itself to an opportunity. We can sell a Cash-Secured Put at a $120 Strike Price with an expiration of July 18, 2025, for a premium received of $2.71.

Support is a price level where buying interest tends to step in, while resistance is where selling pressure usually pushes back. These levels often act as pause points, leading to consolidation or reversals. For more on support and resistance levels, check out this article.

The more advanced approach is to align your strike selection with your intent. If you’re eager to get into the stock, you might sell the put closer to support—say around 125—for a higher chance of assignment. If you’re more focused on collecting premium with less risk of owning the shares, setting the strike further out—like at 120—reduces the likelihood of assignment.

For our purposes, assume we determined the $120 strike was most appropriate. Again, we would sell this put for a premium of $271 [$2.71 × 100 (remember, one contract is for 100 shares)]. By the expiration on July 18th, 2025, if the stock was below $120 per share, we would have to buy 100 shares for every contract we sold. When this is done properly, as in our example, we buy a company we like at a discount—and were paid to do it. We would keep the $271 in premium. Our adjusted cost basis would be $117.29 [120 -2.71].

If by expiration, the stock remained above the strike price of $120, we would just keep the $271 in premium and would then be relieved of the potential obligation to buy. We calculate the return of this trade by dividing the premium received (income) by the at-risk capital. We would get a return of 2.31% [calculated as $271 / $11,729].

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.

To All Theta Throttle Subscribers…

One of the most challenging parts of putting together each edition of Theta Throttle is deciding what to write about. Seriously—if there’s a topic you’re curious about or something you want me to dive into, just reply to this email. There’s a very good chance it’ll become its own edition. Let’s build.

Throttle Q&A

What is the Rule of 72?

The Rule of 72 is a quick and easy way to estimate how long it will take for an investment to double in value, based on a fixed annual rate of return. To use it, you simply divide the number 72 by your annual return rate. For example, if your investment earns 6% per year, dividing 72 by 6 gives you 12, meaning it would take about 12 years for your money to double.

While it’s not perfectly precise, especially for very high or low rates, it gives a surprisingly accurate estimate for returns in the 6% to 10% range. This rule is a handy tool for visualizing the power of compound growth and understanding how small differences in return rates can have a big impact over time.

Dangers of Compounding

While compounding is often celebrated for its wealth-building power, it can also work against you when returns are negative. Just as gains can build on gains, losses can compound too.

Let’s say you have $100,000 and lose 20%—your account drops to $80,000. To get back to $100,000, you now need a 25% gain, not just 20%. That’s compounding working against you—each loss requires a disproportionately larger gain to recover.

This further points to the crucial nature of risk management and selecting high-probability trades.

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Disclaimer

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