when the goin' gets tough

A good option selling friend of mine once said to me, "An option seller's mettle is really tested when he gets beat up!" 

To measure my performance, since I only use monthly options against ETFs, I evaluate the month between option expiration Fridays.  I measure my option selling strategy versus a buy & hold strategy for the ETF.  I also recognize 5 market outcomes:  

1. through the roof.
2. up modestly.
3. flat.
4. down modestly.
5. into the tank.

If the market for my ETF goes through the roof, my option selling strategy will do very well, but not as well as buy & hold.  If the market goes into the tank, I'll also lose, but not as much.  But if the ETF's market is flat, or up or down modestly, option selling is often a real winner.

On 12/23/19, with XLE - the energy ETF - "struggling" at $59.88, I dedicated my entire option selling strategy to XLE by selling the January $59.71 puts for a $0.93 premium.  On option expiration Friday, 1/17/20, I was assigned to buy XLE at $59.71 because XLE closed at $59.12.  I killed it during that January month.  But I've been crunched since.  Down about $175K in my IRA.  My mettle is tested.  

After January's assignment to buy XLE, I sold covered calls versus my XLE shares.  As I applied my sell puts, then calls strategy since then, I've gotten put & called, & I've also repaired my sold puts & calls.  I've generated a ton of option selling premium; my goal is to generate a premium yield that's greater than 10% annualized.  With the volatility index high, that's easy to do.  In fact, I've recently used some of my rich premiums to buy protective calls - my hedge against a rising XLE market.  XLE's quick & strong recovery since March 23 has made it tough for me to beat buy & hold.  

My monthly performance is as you'd expect versus the above market outcomes, yet frustrating:
ending...       option selling         buy & hold

1/17/20          +0.65%                    -1.23%

2/21/20           -7.4%                      - 8.4%          

3/20/20           -45.5%                    -52.2%

4/17/20           +10.7%                   +33.5%

5/8/20*            +13.3%                   +14.2%

*The May monthly options expire on 5/15/20, but my 13.3% presumes they expired on 5/8/20.  My sold XLE puts are out of the money, therefore this presumption is quite fair for this evaluation.   

I sometimes wonder if it's worth it to sell puts, then calls.  Perhaps I should simply use Fidelity Contrafund.  I retired from Fidelity Investments in 2017, & during my 10 years there, I used only Fidelity Contrafund in my 401K.  But I then realize that I'm not good at picking market direction.  That's why I sell puts, then calls, & hope for the 3 middle market outcomes above.  Since 1957, when the S&P index began using 500 companies, it's up about 8% a year.  Quite middle of the road.