After the Fed Cut: An Options Income Playbook

How I’m using LEAPS, the Wheel, and spreads now that cuts are here and VIX sits in the teens.

Yesterday the Fed cut rates for the third consecutive time, another quarter point, down to 3.50 to 3.75 percent. The vote: 9 to 3, with more dissent than we've seen in years.

The headlines wrote themselves. "Divided Fed." "Last cut for a while." "Stagflation risk."

Meanwhile, the S&P 500 closed at a fresh high around 6,886. The Nasdaq 100 did the same. The VIX, which had spiked above 20 in November, settled back into the mid-teens, closing just under 16 yesterday after a brief jump.

Lower policy rates. Equity indexes near highs. Volatility neither dirt cheap nor panicked.

The question isn't "What happens next?" Nobody knows.

The useful question is: Given this environment, how should an options income trader position?

That's what this issue addresses.

I'm going to walk you through how I think about the current backdrop using the same framework we apply to our portfolios: core exposure, income, and hedging, all sized with respect for risk and time.

1. The Post-Fed Backdrop In Plain English

Strip away the noise. Here's what matters for options traders:

The Fed just cut for the third time.
We're at 3.50–3.75 percent. One member wanted a bigger cut. Two wanted no cut at all.

Translation: policy is easing, but the Fed is uncomfortable. They're closer to "wait and see" than "full steam ahead."

The market has already priced in a lot of good news.
The S&P 500 and Nasdaq 100 sit near record levels. Embedded in those prices: optimism about earnings, AI, rate cuts, and the Fed's ability to thread the needle.

Volatility is in the sweet spot for patient sellers.
The VIX recently spiked above 20, then faded back to the mid-teens. That path matters.

Spike higher = options were briefly expensive
Fade lower = markets calmed, but traces of that scare remain in pricing

For income traders, this beats a straight grind lower in volatility. The spike-and-fade dynamic tends to leave more meat in option prices than you see in sleepy, low-vol regimes.

Put differently: we're being paid something for taking risk, but not enough to be reckless.

2. Before Strategy: Guardrails First

Before we touch LEAPS, the Wheel, condors, or anything else, guardrails.

Get these roughly right, and the specific strategy choices become far less stressful.

Position Size

For income trades (spreads, condors, cash-secured puts), I keep risk per trade between 0.5 and 5 percent of portfolio value.

That does two things:

• Acknowledges that markets at highs can overshoot far more than feels "reasonable"

• Protects your ability to place the next trade, which is where the law of large numbers eventually works in your favor

Sequence risk is real. Over short runs, you can get several trades in a row going against you. Aggressive position sizes turn normal volatility into career-ending events. Modest sizes turn those same sequences into uncomfortable but survivable stretches.

Duration

In this environment, I prefer 30 to 60 days for most income trades.

Shorter than that, event risk dominates individual trades.
Much longer, you carry more vega exposure than you want if volatility spikes again.

For LEAPS, I think in 18 to 24+ month terms. LEAPS aren't trades to me, they're capital-efficient stock replacements that let me shape the entire portfolio, not just chase a one-off income idea.

Strike Distance And Delta

Rate cuts and new highs tempt traders to sell closer to the money for larger credits.

That urge is where a lot of people give back months of progress.

I still prefer:

• 15 to 25 delta for most cash-secured puts

• 10 to 20 delta for short legs on bear call spreads or iron condors

• 0.75 to 0.85 delta on LEAPS acting as stock replacements

I'd rather take smaller credits with bigger margins of safety and let repetition, time decay, and diversification do the heavy lifting.

Not exciting. But it's how you stay in the game.

3. Layer One: Core Exposure With LEAPS / Poor Man's Covered Calls

Start with the foundation.

Rate cuts tell you something about policy. New highs tell you something about psychology. Neither guarantees "up only" or "down only."

I want thoughtful long exposure where:

• I believe the business or ETF has durable earnings power

• I'm comfortable owning exposure through a full cycle, not just the next quarter

Instead of allocating full capital to shares, I often:

• Buy deep in-the-money calls 18 to 24+ months out

• Target 0.75 to 0.85 delta so the LEAPS behave like stock

• Aim for extrinsic value under roughly 10 to 15 percent of option price

That combination gives me:

• Strong participation in the underlying's move

• Less capital at risk than owning 100 percent of shares

• The ability to layer short calls against the LEAPS (Poor Man's Covered Call) when the stock runs and volatility remains supportive

The Fed's path is uncertain. The exact peak in equities is unknowable. But building core exposure this way lets you participate in upside while preserving capital for the income and hedging layers.

Think of LEAPS as the chassis of the car. Income trades are the suspension. Hedges are the airbags.

You want all three. But you start with the chassis.

4. Layer Two: Income With Cash-Secured Puts And The Wheel

Next: the income engine.

In a post-cut, new-highs, mid-teens VIX environment, I look for:

• Stocks or ETFs I'd genuinely be happy to own if assigned

• Strikes placed below recent support or at levels where valuation feels more reasonable

• Premiums reflecting the recent volatility spike, not the calmest days of the year

A typical structure right now:

• Expiration 30 to 45 days out

• 15 to 25 delta puts

• Sufficient cash set aside to take assignment without stress

If a stock trades at 100 after a run, I'm more interested in selling the 90 put than the 95. The 95 offers a nicer credit per contract, but the 90 gives me:

• A much wider margin of safety

• Better odds of adjusting or rolling without taking heat

• A strike closer to where I'd be comfortable owning shares anyway

For Wheel traders, this environment is a reminder:

The goal isn't to be assigned on everything.

The goal is to harvest small, repeatable credits over and over, with occasional assignments you're mentally and financially prepared to own.

New highs plus mid-teens volatility often mean options are paying reasonably, but price is extended. Great time to be picky about underlyings and strikes.

5. Layer Three: Hedging And Income With Bear Call Spreads And Iron Condors

The final layer acknowledges reality:

Markets that look "overbought" can remain that way far longer than feels rational.

At the same time, most multi-month periods include at least a handful of shakeouts and sharp pullbacks.

When indexes like SPY, QQQ, DIA, and IWM sit near highs after a run—and my breadth and RSI dashboard flashes "stretched", I start looking at small bear call spreads or iron condors.

Key word: small.

A typical structure:

• 30 to 40 days to expiration

• Short calls around 10 to 20 delta above recent highs

• Defined-risk spreads (long call further out) so I know max loss in advance

• Total risk per spread kept under 2 percent of overall portfolio

In a condor, I often pair that call spread with a farther out-of-the-money put spread. Overall, I'm still leaning with the long-term trend while getting paid to tolerate some chop.

What these are not:

• Predictions that "this is the top"

• Meant to rescue a portfolio already overexposed and under-hedged

What they are:

• A way to harvest premium when prices and sentiment are stretched

• A modest airbag if the first 5 to 10 percent pullback arrives while you're long through LEAPS, shares, or the Wheel

If they expire worthless, fine. They did their job by being there, paid for partly or fully by the credit up front.

6. A Simple Post-Fed Options Checklist

Checklists keep emotions from taking the wheel after big news.

Here's a simple Post-Fed Options Checklist. Any time the Fed moves, walk through this before placing trades:

What did volatility actually do?
Did the VIX spike, fade, or shrug? Did implied volatility in your target names move meaningfully?

Where are the major indexes relative to their recent ranges?
New highs, new lows, or middle of the range? That tells you immediately whether you're playing offense, defense, or something in between.

What is breadth telling you?
Are SPY, QQQ, DIA, and IWM all participating, or is leadership narrow? Stretched, narrow rallies are where bear call spreads and condors make more sense.

Which portfolio layer am I adjusting?
Am I building or maintaining core exposure (LEAPS/PMCCs)?
Focusing on income (cash-secured puts, covered calls, the Wheel)?
Adding hedges (bear call spreads, condors) because my exposure has grown with the trend?

Is my position size small enough that I can be early?
If I'm wrong by 10 to 15 percent on timing, will I still be here placing trades in six months? Or will this one decision dominate my P&L and my mental capital?

Answer those five questions clearly, and you'll be far ahead of most traders who respond to rate cuts with predictions instead of a framework.

Final Thoughts

The temptation after a Fed meeting is to search for a "take" on what comes next. Soft landing, hard landing, no landing. More cuts, no more cuts. Everyone wants a narrative.

Options traders do better with a process:

• Read what policy and price are actually doing

• Let volatility guide how much you get paid to take risk

• Use a layered approach: core exposure, income, and hedging—sized modestly

• Repeat the same disciplined behaviors across many trades and many Fed meetings

The rate decision yesterday changed some numbers on a screen. It didn't change the basic math of premium selling.

Time still passes. Options still decay. Risk still needs to be sized and respected.

Our job is to align our trades with that reality, not with whatever story is popular after a press conference.

Probabilities over predictions,

Andy Crowder

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Disclaimer: This is educational content only. Not investment, tax, or legal advice. Options involve risk and aren't suitable for all investors. Examples are illustrative. Real results will vary. Talk to professionals before you risk real money.