Hello again everyone, I hope your weekend is off to a great start and you’re enjoying college football. I had a terrific week this week, right up until Friday when some upsetting news arrived at work. Nothing catastrophic, just unnecessary behavior from a staff member requiring intervention. I share that because just the night before I watched a sermon on God allowing problems or weaknesses into our lives. The idea being that when things are going fantastic all the time we start believing less in Him and more in ourselves. It’s not exactly a comfortable thought to know God allows bad things to happen. However, we can find comfort in knowing that if we bring it to Him, it will be resolved. He reminds us of His mercy and power, we remember to always take it to Him.
With that I wanted to share with you my Cave Man options trading strategy. This strategy requires a long and a short vertical spread, nothing more. If you’re familiar with that fundamental options strategy then you already know, it’s easy enough for a cave man. Hence, the name :). Honestly though, I’m shocked I’ve never traded it this way before and if you take a minute to read along, you might be as well.
That said, before I go on, in this post I’m going to discuss the use of a $5 wide vertical spread. However, the strategy could easily be adapted for as little as $2 wide. Or even $1 wide, if $0.50 strike widths are available. The point is, anyone can access this strategy with less than $500 and find success with options.
Let’s get into it…
Post Agenda
Cave Man Options Strategy Overview
The vertical spread is the easiest options strategy to trade. It’s easy to understand, easy to trade or adjust, and most importantly, the risk is limited. Because of this I wanted to find a way back to trading verticals but I also wanted to improve the risk to reward. You know, that whole picking up pennies in front of a freight train thing isn’t the best.
The Cave Man strategy is really just the combination of a short put vertical spread and a long put vertical spread entered at a different expirations. The long spread is entered nearer expiration and the short spread entered further out. Additionally, the short spread will also need to be wider than the long spread to reduce cost. As a sidenote, these spreads are also known as the bull put vertical or the bear put vertical for anyone not familiar.
In one sentence, the Cave Man strategy is a longer dated but wider short spread and a nearer dated but narrower long spread. This construction, in a sense, creates a spread of it’s own. That spread is what we aim to collect as profit.
Lastly, the strategy can be set up to capitalize on a bullish or bearish sentiment. If I was bullish I’d use put spreads, if I was bearish, call spreads. In either one, the long spread will provide nearly 100% protection for the short spread. However, getting the direction correct isn’t absolutely necessary either. Because as I’ll share below the spread can be initiated to profit even if the directional assumption is proved wrong.
For the moment, hopefully this provides a framework. Once you see the construction below it will be much easier to understand. Let’s have a look…
Cave Man Options Strategy Examples
Before I share the strategy and discuss the mechanics of the trade here are the bullet points. Also, in these examples, I’m going to maintain a bullish sentiment using put spreads.
- Short Vertical Put Spread – 14 DTE – $5 wide
- Long Vertical Put Spread – 7 DTE – $3-$4 wide
If I was confident in my directional assumption I’d go with the $3 wide long spread. If I wasn’t, I’d opt for the wider long spread. This would provide a more profitable opportunity if I was wrong at the expense of a lesser profit if I were right. In any case, here is the initial Cave Man spread construction.
Cave Man Strategy Example #1
From the image, you’ll notice the $3 wide spread and a $5 wide spread. Unfortunately, I had to cut off the quantities to make it larger but the $5 wide spread is the short spread and the $3 is the long spread. Additionally, the trade was entered into the back test engine on Friday March 7, 2025. If you remember, this was near the time of Trump’s tariff non-sense, so not a bullish period. SPY was trading at $562.72 at entry. Here are the P/L results by day.
- Monday 3/10/25 – ($19.00)
- Tuesday 3/11/25 – ($20.00)
- Wednesday 3/12/25 – ($22.50)
- Thursday 3/13/25 – ($54.00)
- Friday 3/14/25 – $38.50
SPY was at $561.44 when the trade was closed but here is the price chart for the period.
Example Trade #1 Recap
Ok, now that you have the full view, let’s break this down. First, I never intend to hold the short spread without the long spread. If I wanted to do that, I’d leave the long alone from the start. However, what you likely noticed was that price was negative every day until the expiration of the long spread. That is a feature of long spreads, unfortunately. They don’t really reach their profit potential until expiration. Since, in this case, I was wrong on my bullish assumption, I had to wait until the last day to exit so my protectionary long spread kicked in to profit.
For this trade I received $1.80 in credit on the short spread and paid $0.99 for the long spread, a net credit of $0.81. If you do the math that means I had a potential max loss of $320 on the short spread and a max profit of $201 on the long spread. In this trade, had price not jumped higher on Friday, I would probably have experienced the Cave Man strategies max loss of $320 – $201 or $119. Not great I know but also not the $320 loss I would have earned just trading the short spread.
In this next example, I’ll share what the strategy looks like utilizing a $4 spread during this period.
Cave Man Strategy Example #2
You can see, the trade is setup exactly the same with the only difference, a $4 wide long spread instead of the $3 wide spread in the previous example. That left me with a smaller net credit of $0.52 for the trade. All other parameters are identical to the previous trade. Here are the day to day results.
- Monday 3/10/25 – $0.00
- Tuesday 3/11/25 – $21.50
- Wednesday 3/12/25 – $0.50
- Thursday 3/13/25 – $20.50
- Friday 3/14/25 – $80.00
With all the details remaining the same, I won’t share the price chart again.
Example Trade #2 Recap
As you can see, the $4 wide spread provide a much nicer profit since I was wrong on my bullish assumption. Additionally, the wider spread allowed for a more palatable ride as it stayed profitable throughout the trade. In this example, I had the same $320 loss potential on the short spread but now I had a profit potential of $271 on the long spread. Not a dramatic difference from the long spread above but enough to protect from the losses that appeared previously.
This highlights the Cave Man’s strategies potential. If the market moves fast against the initial assumption, the long spread kicks in to cushion the blow. While at the same time theta is decaying on the short spread at a fairly rapid pace. Since when the long spread expires the short spread only has 7 DTE remaining. In the final example, we’ll look at a similar trade during a bullish market move.
Cave Man Strategy Example #3
Again, in this example I went back to using the $3 wide long spread. The short spread was entered just OTM as before. SPY price at trade entry on Friday May 9, 2025 was $564.95. Here is the day to day P/L.
- Monday 5/12/25 – $40.00
- Tuesday 5/13/25 – $57.00
- Wednesday 5/14/25 – $55.50
- Thursday 5/15/25 – $61.00
- Friday 5/16/25 – $69.00
In this example, price closed on Friday 5/16/25 at $593.86 so price was firmly bullish with a gap up the first day.
Final Thoughts
Hopefully you enjoyed learning about the Cave Man Options trading strategy. It may seem like a lot of information but I wanted to discuss and show several different aspects of the trade. The strategy is unique because no matter what the market does any losses will remain severely muted. A feature I wish I’d had more than once or twice.
In all, the Cave Man options strategy provides a nice framework for building a trade that can profit in whatever way the market decides to move next. Moreover, the trade isn’t limited to just the shorter duration. I haven’t tested it specifically but I don’t see any reason why the same concepts can’t be applied to longer dated spreads. In doing so, I’m of the belief that there would never be any reason to accept a loss. At some point the market is going to move favorably or unfavorably and at those extremes the Cave Man strategy is very capable of providing a profit.
Until the next post.
God bless,
Jeff
