By Far, the 3 Best Trading Strategies

Summary

Tom Sosnoff says that, over 45 years and more than one million trades, roughly two-thirds of his returns came from three options strategies: naked short puts, credit spreads, and covered calls. He says strategies may lack a theoretical edge but can offer a mechanical advantage through repeatable rules and probability-based trading.

1. Naked short puts

Sosnoff calls selling out-of-the-money puts his most important strategy, citing positive market exposure, capital efficiency, and straightforward mechanics.

• Typical setup: About 25 delta and 45 days to expiration (DTE). He says a 25-delta put has a probability of success above 75%; elsewhere, he says he uses strikes around 16–25 delta.
• Buying power: He estimates requirements at roughly 20% of the short strike price.
• Underlying selection: He looks for stocks he considers inexpensive, with high implied volatility—measured using IV rank (IVR)—and good liquidity. He particularly likes oversold stocks.
• Risk management: Keep positions small and diversified; don’t average down. If a position goes against him, he says a trader might sell a call against it or extend the expiration. If it becomes profitable, consider taking profits.
• Risk clarification: A short put has substantial downside if the stock falls, but its maximum loss is generally bounded—approximately the strike price less the premium if the stock falls to zero. The subtitles describe the risk as “unlimited,” which is not technically accurate for a put.

2. Credit spreads

A credit spread sells an option closer to the stock price and buys a farther out-of-the-money option to limit risk. Sosnoff favors them as a defined-risk strategy, particularly for higher-priced stocks and index products.

• Typical setup: Place the short strike just beyond the expected move and collect about 25–33% of the spread width. For his index and ETF trades, he says he often targets 20–25%.
• Expiration: He favors monthly options over short-term weeklies, though he notes that credit spreads are commonly used with SPX zero-DTE options.
• Buying power: He describes it as the spread width minus the credit received. The subtitles also give a probability-of-profit rule—“100% minus the percentage of credit collected”—but that is an oversimplified claim and not a reliable general probability calculation.
• Markets and instruments: He uses credit spreads on SPX, QQQ, and SPY, often selling out-of-the-money spreads near the expected move. The transcript’s wording around “buy credit spreads” is unclear and does not specify the spread type consistently.
• Possible structures: Credit spreads can be bullish, bearish, or neutral, and can be combined into structures such as butterflies, Jade Lizards, and iron condors.

3. Covered calls

Sosnoff frames covered calls less as an income strategy and more as a way to reduce the cost basis of stock holdings.

• Typical setup: Own 100 shares per call sold, choose an out-of-the-money call around 30 delta, and use about 45 DTE.
• Underlying selection: He prefers shares he considers inexpensive, with relatively high implied volatility, in a stock he is willing to own. He says covered calls are more attractive after market pullbacks than when markets are at all-time highs.
• Stock price and liquidity: He suggests considering stocks in roughly the $10 to $75–$100 range, partly to avoid tying up too much capital. He also mentions liquidity as a consideration.
• Trade management: Buy back a winning short call once it has reached about 50% of its maximum profit, then sell a call in a new cycle. He claims this can raise the gross probability of profit on a stock position from about 54% to 64%.

Portfolio comments and other points

• As an illustrative allocation, Sosnoff mentions 10–20% in stocks, 10–20% in short credit spreads, and up to 40% in short uncovered strangles and/or short puts. These are presented as his preferences, not a complete allocation plan.
• He says short puts have been his strongest strategy over his career but acknowledges they can backfire.
• He describes short strangles as a personal favorite, though not one of the three strategies he identifies as his most important.
• The strategies and performance figures are Sosnoff’s own claims and views. The subtitles contain no explicit financial-advice disclaimer.

Assets and instruments mentioned: Individual stocks, options, short puts, short strangles, credit spreads, covered calls, calls, SPX, QQQ, SPY, index products, ETFs, zero-DTE options, and monthly options.

Presenter/source: Tom Sosnoff.