This is my current 7 dte list and how I trade 20/10 delta Short Put Spreads for weekly paychecks.
I was trading 7/1 delta, but the backtesting helped show me that I was leaving a lot of money on the table. It is important I stay mechanical with these trades.
I strive to make at least 1-2% weekly on my total capital. Credit Put Spreads help me to achieve this goal and these plays are pretty much foolproof in a bull and sideways market.
I will continue trading these until they no longer work.
Finding the Right Candidates
Using screeners, charts, and backtesting software has made it easier for me to find stocks that have been high flyers over the past 5 years which pay excellent premiums.
The criteria I use for finding potential 7 DTE 20 delta Short Put Spreads is found in the list below that helps me narrow down to only a handful of stocks I will trade.
- Use a Screener to find stocks with High Options Volume, liqidity, high Implied volatility, and high premiums
- After screening for stocks use Charts to see which stocks have been increasing over the past 5 years. Just a quick visual glance of the 1 day and 1 week time frames.
- After that, use backtesting Software to find staocks that have produced an average of 2% or better per week based on a short leg delta of 20 and a long leg delta of 10.
The data can be found here.
Sell a 20 delta 7 dte Put
Buy a 10 delta Put
Stop set @ 200%
Manually close the trade 1 hour before expiration (Dependent upon your broker) if the trade has not hit 90% or hit the stop. SPX I let go to expiration since it is cash-settled. ***RUT has different expiration days and settlements so I close it out like the non-cash-settled stocks. Pay attention to the expiration days.
Note: I like to make the width of my spread so that the profit per trade is preferably 2% or better of the buying power for 1 contract.
Example of a Trade
Note that the credit for this trade is $557 and buying power used is $4443. If this trade is a winner that gives us 12.5% total return on our capital for one week. Keep in mind that you will take this off the table at 90% which gives you a profit of $501 minus fees. For this particular trade, it would be a profit of ~ 11% return on capital for the week trade.
The stop is set at 200% so the max loss would be $557 minus fees.
The Candidates Up Close