Renko Chart Options Income Trading
Renko chart options income strategies involve selling out of the money calls and puts for longer expirations. In contrast to directional trading using weekly options, the options income sells have expirations of 1 to 2 months.
We use our slow momentum indicator extremes for the timing of Renko options income trades. The trades are counter directional and intended at the end of a trading swing. This is consistent with selling out of the money options.
Also important for Renko options income selling are protection trades.
We will talk about trades like blue circle 2. You can see on the chart that after the slow momentum extreme indicated an option sell, the swing low broke by what looks like a significant amount.
How can you protect trades like this?
Renko Chart Options Selling
As noted above, the blue circle Renko chart option income sells are counter-directional strategies. Counter directional means that at the time of the trade, you take the option sell against the direction shown by the Renko price envelope.
These are our Renko options method trade setups for income.
- Blue circle price extreme reverse.
- The price has moved 5+ consecutive bricks.
- Slow momentum has moved above or below its extreme line, and the lines have crossed.
- The link below shows you more about Renko chart momentum indicators and trade setups.
After your Renko option to sell components has occurred, you make the trades on a counter direction brick.
- Sell an out of the money put on a green brick after a price and momentum extreme low.
- Sell and out of the money call on a red brick after a price and momentum extreme high.
Renko chart option income trades take advantage of these extremes to get higher option premiums for out of the money options. I like to sell options around 12-15 points out of the money and 1-2 expirations in advance.
You can see on the chart that there are 4 Renko option income sells in December or January. There are open option income sells for November.
Renko Option Income Position Trades Protection
Look at the blue circle, which is a Renko chart option income sell. What is your impression; do you think we should probably close this as a losing trade?
Let’s look at this trade closer.
On 10/23, we sold a Dec 405 put for 6.10, after a 418.67 price and momentum extreme low. On 10/27, the Renko swing low was 409.21.
The high price for the put was 9.28. So, yes, the trade currently shows a 3.18 unrealized loss. But the breakeven at 398.90 is still 10.31 lower, and there is no assignment risk on the trade.
But what about the Renko option sell protection factor?
- The yellow circle is a Renko directional trade using options expiring on 10/27.
- At this point, the Dec 405 put actually became part of a long put spread – through expiration.
- Long 430 put 2.55 405 put 6.10.
- You have a long 25-point spread done at a credit of 3.55.
Renko Income Sell Protection
However, are you concerned that regardless of the price-momentum extreme, the price will continue down after expiration? Then, you can close the long put-short put spread.
- Buy the short 405 put at the 10/27 closing price of 8.57 and sell the 430 put at 19.32.
- (6.10 – 8.57 = -2.47) + (19.32 – 2.55 = +16.77) = +14.33
- You also gained another 2.38, the price for the call sell in the Renko option synthetic trade.
- 14.33 + 2.38 = 16.71 * 100 = $1671 gain for each open spread.
This is an example of the Renko option income sell protection inherent in our position trading method. You will typically have long puts or calls to protect the income sells if you want to close a losing option short.
More typically, there is a reverse after a price-momentum extreme. And then, if there is a resumption of the previous price direction, you will usually get another trade setup that will include a long option at a new expiration for protection.
Yes, there could be times that you do not get a new Renko option income sell protection trade. In that case, the only alternative would be to take a loss and close the trade.
Renko Position Trading Combination Method
I think of our Renko options position trading as a combination of 2 methods.
- Directional: Trading options long or short with the price envelope reverses. These trades are also protection trades for our option income trades.
- Counter Direction: Selling out of the money options for income at price and momentum extremes.
Renko Options Synthetic And Income Trades
Renko Options Strategies: SPY Position Trading With Options
You also saw how this combination worked, where the long 430 put-short 433 call effectively captured a directional sell swing. And then you saw how the protection factor worked. Your short 405 income put was at a loss, but you could close it as part of a profitable spread trade.
But did you have to close the short 405 puts after expiration when you lost your protection trade?
- No. You could make this choice if you were uncomfortable.
- You had a -3.18 paper loss, well more than covered by large directional trade gains.
- Your breakeven on the options income sell was still 10.31 points lower.
- And you would be making your trading decision at another price-momentum extreme.
At this point, you could still hold this Renko option income trade at the new extreme for a potential reverse. You could also reduce your trade size, for instance:
- What if you were short 2 Dec 405 puts and long 1 10/27 430 put?
- Close 1 of your 405 puts as a spread with the long 430 put, and hold the other short put at this new extreme.
Renko Option Trade Combination
Let’s look at another combination of SPY Renko options trades. We will begin with the momentum extreme put sell [counter direction] with the call buy-put sell [directional].
- Momentum extreme reverse: Sell Dec 395 puts 5.00.
- You are also short the Dec 405 puts 6.10 if you held any of these when your 10/27 Renko option protection trade expired.
- Price envelope reverse buy: Buy 418 calls 3.60 and sell 414 puts 3.25 [synthetic options trade at a .35 debit].
You can see the size of the swing from 10/30 to the 11/10 weekly option expiration; 10 trading days and over 24 points of price movement is one of the biggest that I remember. Besides the price envelope reverse shown on the SPY 1.5 brick chart above, we also had addon setups on 10/31 and 11/1 from the SPY 1 brick chart.
No protection trade was ever needed for this combination of Renko option trades. You didn’t have a momentum extreme sell inside this buy swing like there was for the short swing.
And then, finally, we have a Renko price-momentum reverse option sell of the Jan 450 calls at 5.35. This trade occurred on 11/9, 1 day before the 11/10 expiration.
So, if this trade needs protection, it must come from a new trade setup. I will first look to the Renko 1 brick SPY chart to reverse into sell and then back into buy, with the 1.5 brick chart remaining in buy.
But at this time, there is almost 15 points of room to the breakeven for the Renko income put sell, and your unrealized loss is only -.93.
