The Truth About Selling Daily SPY & XSP Puts for Small Gains

 The Truth About Selling Daily SPY & XSP Puts for Small Gains

Is It a Smart Strategy or Just Picking Up Pennies in Front of a Steamroller?

Published December 5, 2025If you spend any time in options trading forums or Discord servers, you’ll see the same story repeated hundreds of times:“I sell 0DTE or 1DTE puts on SPY or XSP every day, collect $20–$80 premium, close for 50–70 % profit the same day or next morning, and repeat. I’ve been doing this for months and it prints money. Am I an idiot?”The short answer: No, you’re not an idiot.
You’re running one of the most popular retail short-volatility strategies in existence today. Professional trading desks, prop firms, and systematic funds have been doing variations of this for decades.But popularity ≠ safety.This article breaks down exactly what you’re doing, why it feels so good, where the danger hides, and how to tell if your version is likely to survive the next market crash.What the Strategy Actually Is

• Instrument: SPY (S&P 500 ETF) or XSP (mini-S&P 500 index options, 1/10th size, cash-settled, 60/40 tax treatment)
• Expiration: Usually 0DTE (same-day) or 1DTE
• Strike selection: Typically 5–20 delta puts (roughly 1–4 % out-of-the-money)
• Trade management: Close for 50–80 % of credit received, often same day
• Frequency: Daily or near-daily

In plain English: You are systematically short gamma and short vega while being long theta. You make money from time decay and small upward/drift moves, but you lose big on sharp downward moves.Historical Performance Reality CheckMultiple independent studies and backtests show the same pattern:

Period	Strategy (daily short ~10-delta SPX puts, close at 50 % profit)	Compound Annual Return	Max Drawdown	Reference
2007–2024	Short strangle/straddle variants	~12–18 % CAGR	–60 % to –95 %	CBOE, tastytrade, ORATS
2010–2019 (low vol era)	Daily 0DTE short puts	~25–40 % CAGR	–35 % to –55 %	ProjectOption, SPX Option Trader
Mar 2020 (COVID crash)	Same strategy	–80 % to –120 % in 4 weeks		Multiple retail blow-up reports
Oct–Dec 2022	Daily short puts	–45 % to –70 %		Reddit r/thetagang archives

Key takeaway: The strategy produces spectacular risk-adjusted returns in quiet and upward-drifting markets and then gives almost everything back (or more) in a single violent sell-off.Why It Feels So Good (Until It Doesn’t)

1. Win rate 80–95 % – most days the market doesn’t drop 2–4 %
2. Small, frequent profits – dopamine hits every day
3. “I can always close early” – illusion of control
4. Survivorship bias – you mostly hear from the survivors on social media, not the ones who blew up last February

As Nassim Taleb famously said: “This strategy is like selling insurance on tranquilizers — you collect premiums peacefully until the day the hurricane hits and wipes you out.”Real-World Blow-Up Examples

• February 5, 2018 “Volmageddon” – XIV and short-vol ETNs lost 95 % in one day; many retail short-strangle accounts lost 70–100 %
• March 2020 – countless r/thetagang and r/options accounts posted 0’d out selling puts into the fastest 30 % drawdown in history
• September 2022 – a milder 10 % correction still wiped out many daily sellers who were over-leveraged

How to Make This Strategy Survivable (If You Insist)If you refuse to quit (and many of us won’t), here are the non-negotiable rules used by the traders who have run this for 10+ years without blowing up:

1. Position size ≤ 3–5× expected daily theta
   Never risk more than you collect in a typical week on any single trade.
2. Maximum portfolio risk per day ≤ 1–2 % of account
   A 4 % SPX drop should hurt, not kill.
3. Hard stop-loss or hedge
   Buy far-OTM puts (e.g., 5–8 % OTM weeklies) or use VIX calls as tail hedge (costs ~1–2 % per month but saves your life).
4. Reduce size dramatically when VIX > 20–22
   Implied vol is the only reliable predictor of future realized vol.
5. Prefer XSP over SPY for tax and assignment reasons
   60/40 treatment + no early assignment risk.
6. Never, ever “average down” or turn it into a naked strangle when losing
   That’s how small losses become account-ending ones.

Final VerdictSelling daily SPY/XSP puts and closing for small gains is a perfectly legitimate strategy that has made many traders very wealthy over long periods — but only the ones who treat it as a sophisticated insurance business, not a get-rich-quick scheme.If your account is small (< $50k) and you can’t survive a 50–70 % drawdown, walk away now.
If you have proper risk controls and can sleep through a 2020-style crash, then keep going — just keep worshipping at the altar of the Greek gods, especially Gamma and Vega, because one day they will demand their sacrifice.As one veteran trader put it:
“Theta is a generous god that pays daily interest… until it charges you compound interest in one day.”References & Further Reading

1. Israelov, R., & Nielsen, L. (2015). “Still Not Cheap: Portfolio Protection in Calm Markets.” AQR Capital Management.
2. Simon, D., & Campasano, J. (2020). “0DTE Options: The New Volatility Game.” CBOE Research Paper.
3. “The Impact of Short-Dated Options on Implied Volatility” – ORATS Research, 2024.
4. “Volatility Risk Premium Harvesting” – tastytrade Research Series, 2014–2024.
5. Taleb, N. N. (2007). The Black Swan: The Impact of the Highly Improbable.
6. Reddit r/thetagang archives (2018–2025) – real-world case studies of both success and catastrophic failure.

Stay green, respect the tails, and may Theta be forever in your favor.