I don’t know how to tell when the ask-bid spread makes strategies such as “sell 1 put and buy 2 puts at lower strike” not worth doing (because potential profit is eaten up by transaction costs).
I meant close one of the profitable puts you already own, and then use the money to buy two more. (Incidentally, the spread you are describing is called a backspread, which is also worth considering when you expect a big move, as the short option can offset some of the problematic Greeks of the long ones.) Maybe you can vary the ratios. It depends on what’s available. I don’t know how many puts you have, but how aggressive you should be depends on your forecast, account size, and risk tolerance.
I don’t know your transaction costs either, but commissions have gotten pretty reasonable these days. This can vary widely among brokers. TD Ameritrade, for example, charges only $0.65 per contract and lets you close contracts under $0.05 for free. Tastyworks charges $1.00 per contract, but always lets you close for free. They also cap their commissions at $10 per leg (which can add up if you trade at high enough volume). Firstrade charges $0. That is not a typo. (There are still some regulatory fees that add up to less that a cent.) If your commissions are much higher than these, maybe you need a new broker.
I meant close one of the profitable puts you already own, and then use the money to buy two more. (Incidentally, the spread you are describing is called a backspread, which is also worth considering when you expect a big move, as the short option can offset some of the problematic Greeks of the long ones.) Maybe you can vary the ratios. It depends on what’s available. I don’t know how many puts you have, but how aggressive you should be depends on your forecast, account size, and risk tolerance.
I don’t know your transaction costs either, but commissions have gotten pretty reasonable these days. This can vary widely among brokers. TD Ameritrade, for example, charges only $0.65 per contract and lets you close contracts under $0.05 for free. Tastyworks charges $1.00 per contract, but always lets you close for free. They also cap their commissions at $10 per leg (which can add up if you trade at high enough volume). Firstrade charges $0. That is not a typo. (There are still some regulatory fees that add up to less that a cent.) If your commissions are much higher than these, maybe you need a new broker.