Here is an example of how not to trade (I got lucky and made a profit anyway. But I broke all my rules).

On 1/15/13 I sold 20 Ck3 600p for 2.000. On 3/21 they were down to the bottom, 0.125. I should have traded out by at least then. But I kept them on because I figured the corn price was over 7.25 and I can make the last bit of premium by waiting.

Well the grain report came out, corn crashed, and the premium jumped to a peak of 3.625. Losing money then and huge margin increase.

I ignored my rules for getting out and kept them. Corn stayed above 6.28. The options just did expire OTM.

Lesson here is take the profit and don't try to squeeze the last penny out of the trade.

I had considered credit spreads but as you mentioned the return is even lower and so not worth to me...

Regarding my strategy, it is kind of similar but on little longer term, like wait for ES to go down few days then sell options with 30-40 day expiry and about 2 significant support out (on weekly charts - so usually they are about 150-200 points away). I had sold weekly before but got burnt and in my personal experience I find it more profitable to buy weekly options rather than selling them...I know this thread is about selling options but it is just that I could not find a way to control risk on weekly options that is acceptable to me and that is why I am asking for any thoughts/ideas for that.....

I am still on board for selling longer term and deep OTM options with preparedness to delta hedge or roll further....

Thank you

This is the one issue that I am trying to determine if selling weekly options on the ES is a worthy prospect...not much premium for the OTM options and the inherent risk of a big drop in one or two days. Yes, risk is part of trading, but this might be too much risk. I have been thinking about 20 or 30 DTE and then waiting for a few down days in a row within those 20 or 30 days then sell....let the market drop and deflate itself somewhat so in the event this drop is the start of a larger move then a certain % of the total move has already happened.

Going to try to build on that for a while....

I ran some quick numbers on deep OTM weekly options, 1 to 2 weeks out. I looked at deltas of around .02 (per Ron's rules). For 7 DTE (days to expiration), the monthly ROI was less than 1%. For 14 DTE, the monthly ROI was less than 1.5%. Pretty low.

So, at least right now, to do weekly with low delta puts, I conclude sufficient ROI just isn't there. So this means one has to add DTE, or raise delta, or some combination of the 2, or lower the excess you keep aside (not the 2x Ron recommends) to get better ROI.

What made you break your rules and keep those options, after the jump in premium? In hindsight, it was a good decision, but at the time, it had to be a little scary to violate your rules and stay in a trade that could have gone a lot more against you...

I ran some quick numbers on deep OTM weekly options, 1 to 2 weeks out. I looked at deltas of around .02 (per Ron's rules). For 7 DTE (days to expiration), the monthly ROI was less than 1%. For 14 DTE, the monthly ROI was less than 1.5%. Pretty low.

So, at least right now, to do weekly with low delta puts, I conclude sufficient ROI just isn't there. So this means one has to add DTE, or raise delta, or some combination of the 2, or lower the excess you keep aside (not the 2x Ron recommends) to get better ROI.

Looking at the May week 1 ES weeklies, if you go to 10 days before expiration, Apr 23rd, a .02 delta is 1465. It settled that day at 0.55. That was only 90 away from the futures price.

The margin on Apr 23rd was $2146. Monthly ROI is only 1.2%.

But if you look at my largest drop table for 10 days, there are several times in the last 5 1/2 years when the futures dropped 160-180 (ignoring Dec 2008) in 10 days. That puts this option ITM.

So the question is, can you get out and not have a large loss when the market goes against you? And do the gains more than offset the losers? And is the ROI good enough to do this vs something else?

I'd rather sell Sep 300 KC calls and make 6+% per month ROI. Far, far less chance of being knocked out of them at a loss than weekly ES. But some people get bored with that and that is OK.