I use options for one reason above all others: they give me leverage without the margin call. That asymmetry — defined maximum loss, theoretically unlimited upside — is what makes options structurally different from every other instrument I trade.
But most people use options exactly backwards. They buy lottery tickets with short expiries when IV is already elevated. They chase momentum with calls on stocks that have already moved. They sell puts on names they don't want to own. My framework is built around doing the opposite of all three.
Why I Use Options Instead of Leverage
The traditional alternative to options leverage is margin. Margin gives you buying power, but it introduces a variable that options don't have: the forced exit. A margin call doesn't care about your thesis. It cares about your account balance at the moment the call is triggered.
I've seen good trades get destroyed by margin calls at exactly the wrong moment — at the low of a temporary drawdown that resolved within weeks. The position was right. The structure was wrong.
Options solve this. When I buy a call, my maximum loss is defined at entry: the premium paid. I can be wrong on timing, wrong on magnitude, even wrong on direction for a period of time — and I cannot be forced out of the position before expiry. The volatility can do whatever it wants. My loss floor is fixed.
That's not a small thing. In volatile markets — and 2026 has been volatile — that structural protection changes how I think about position sizing and holding through drawdowns.
The 3 Setups I Trade
My options activity clusters around three repeating setups. I don't improvise much outside these three.
Setup 1: Earnings IV Crush. Before earnings, implied volatility on individual stocks expands — sometimes dramatically — as the market prices in the uncertainty of the announcement. After earnings, regardless of the result, IV collapses. This is mechanical: the event that justified the elevated vol has passed.
I trade this by selling options before earnings on names where IV has expanded to historically elevated levels relative to recent realized vol. The trade profits from IV compression, not from predicting the earnings result. I size these small — 1-2% of portfolio per position — because the directional risk around earnings is real even when IV mean-reversion is the target.
Setup 2: Covered Calls on Core Positions. For stocks I own outright and intend to hold through multiple market cycles, I sell covered calls at strike prices above my exit target. This generates income on positions I'm holding anyway, with the only cost being capped upside if the stock blows through my strike.
In 2026, I've been doing this actively on Mag-7 names where IV is elevated enough to produce meaningful premium but where my conviction on the long-term position is high enough that I'm comfortable owning through volatility. When IV is high, covered call income is substantial. The premium collected reduces my effective cost basis and provides downside cushion.
Setup 3: Tail-Risk Puts. A small allocation — I target 1-2% of total portfolio annually — goes into far out-of-the-money puts on the broad market or on specific names where I think the market is underpricing tail risk. These positions rarely profit. When they do, they profit enormously.
I think of this as portfolio insurance, not as a speculation. If I'm running a concentrated long equity portfolio, the tail-risk put allocation is the cost of sleeping at night through a systemic drawdown. The 2020 COVID sell-off, the 2022 rate shock — in both cases, tail-risk put positions I held provided either meaningful P&L offset or psychological cover to hold through the drawdown rather than selling at the bottom.
How I Size Options Positions
Position sizing in options is different from equities because the leverage is embedded. A 5% portfolio allocation to a 2x leveraged options position gives me 10% effective equity exposure, which may be more than I want.
My rule: I size options positions by their delta-adjusted equity equivalent, not by the nominal premium paid. If I buy $10,000 of calls with a delta of 0.4, I'm treating that as $4,000 of equity exposure for portfolio sizing purposes. I then apply the same concentration limits I'd apply to a direct equity holding.
This prevents the common error of underweighting options in nominal terms while inadvertently overweighting them in terms of actual market exposure.
What I Avoid: Zero-Day Options Gambling
Zero-day-to-expiration (0DTE) options have become the fastest-growing segment of the options market. I don't trade them. Not occasionally. Not experimentally. Not at all.
Buffett has compared certain derivative markets to a casino. The 0DTE market, as currently structured, is the closest thing the listed options market has to that description. The math on the buy side of 0DTE options is brutal: you need to be right on direction, magnitude, and timing — all within hours. Market makers, with structural advantages in pricing and execution, are on the other side of most of these trades.
The expected value of buying 0DTE options, for a non-professional with no structural edge in intraday market making, is negative on a risk-adjusted basis. That's not a controversial claim. It's a mathematical consequence of the spread and the probability distribution.
I'd rather put that capital toward Setup 1 or Setup 2, where I have a structural edge or a clear fundamental thesis, than into instruments that are designed to transfer wealth from retail to institutional counterparties efficiently.
The 2026 Environment: High IV on Semis and Mag-7 Covered Calls
The current market is one of the more interesting options environments I've seen. Semiconductor stocks — Micron, Nvidia, AMD, TSMC — are trading with implied volatility that reflects genuine macro uncertainty: AI capex cycles, export controls, supply chain concentration. That elevated vol makes Setup 2 (covered calls) particularly attractive on names I want to own through the cycle.
On the Mag-7, the same dynamic applies. Apple, Alphabet, Amazon, Meta — all are trading at IV levels that make covered call income meaningful on an annualized basis. I've been systematically selling calls on positions I hold at strikes I'd be comfortable exiting at. If the stock runs through my strike, I've exited at a price I considered acceptable. If it doesn't, I keep the premium and repeat.
The one rule I won't break in this environment: I don't buy options when IV is already above 2x the index implied volatility. When a single-name stock is trading at 80-plus implied vol against a VIX of 15, the options are pricing in a move that history says is unlikely to materialize at that magnitude. At that point, selling vol — not buying it — is where the structural edge lies.
That's the framework. It isn't complicated. But most of what makes options profitable is discipline in what you don't do, not creativity in what you do.
— Ruslan Averin, averin.com