I have written many times about the best premium selling strategies and how it makes sense to take advantage of a holiday. Monday, of course, is Memorial Day, and along with remembering those who died while serving in our armed forces and enjoying a nice barbecue, we will have an extra day of decay to enjoy as a premium seller.
But the challenge is which name(s) to sell premium, and how do we accomplish this with market volatility already so low? I love to sell premium into these holiday weekends. If you're willing to be patient and wait (time is a premium seller's friend), then I believe it is one of the better tactics to employ.
It's kind of tricky, but I look for chart setups prior to making the trade. I also look for some good premium that can decay nicely with a move in my direction. The fairly easy trade is finding something with a bit of juice out-of-the-money and selling that choice. Naturally, I will use spreads rather than selling naked calls or puts, which would put me at risk of substantial losses.
For this weekend, simply selling weekly spreads expiring on May 30 would be a good strategy. We would do this no later than today, May 23. A couple of names I have on my radar include Baidu BIDU, Google (GOOG, GOOGL), Herbalife (HLF), SPDR S&P 500 (SPY), iShares Russell 2000 (IWM) and Amazon (AMZN).
My approach would be to sell out-of-the-money put spreads on stocks such as GOOGL, BIDU, AMZN or HLF. The choice for me would be a 1-1 risk profile (for example, collect $2.50 for a $5 spread). For BIDU, it might be selling the May 30 $170 put, then buying the May 30 $165 put, thereby defining my risk. This is a bullish/neutral play.
As for the SPY and IWM, I would sell one to two strikes in out-of-the-money call spreads (bearish). While the premium is not huge, they should collapse nicely after the three-day decay. If there is a big push higher, I suspect my short put spreads will collapse more than the loss I would take on these two bearish plays.