# Big ERN on 15 Years of Selling SPX Options: Sizing, Stops and 0DTE

> Karsten Jeske (Big ERN) has sold S&P 500 options since 2011. How he sizes for a once-in-40-year event, why he dropped VIX hedges, and how 0DTE smoothed returns.

- URL: https://optionomega.com/blog/big-ern-karsten-jeske-selling-spx-options/
- Published: 2026-05-09
- Author: Option Omega
- Featuring: Karsten Jeske (Big ERN, author of the Early Retirement Now blog)
- Topics: Interview, SPX, 0DTE, Risk Management, Volatility
- Video: [15 Years of Selling SPX Options: What Big ERN Actually Does (Karsten Jeske)](https://www.youtube.com/watch?v=zQA93nL9Nh8)

## Key points

- Karsten Jeske (Big ERN) started selling S&P 500 puts in 2011 and now trades mostly 0DTE and 1DTE SPX options, to spread his edge over as many small bets as possible.
- He sizes positions so that, by his model, a once-in-40-year move would cost him something like 10% to 15%, and he has posted information ratios of about 9 to above 10 over some calendar years.
- He says his returns have smoothed out since SPX moved to daily expirations: as of the May 2026 interview, his last losing calendar month was June 2022.
- He dropped VIX call hedges, traded with no stops until about 2021–22, and now uses stop limits, while noting that his stops have cost him money on net.

Karsten Jeske, known as Big ERN from the Early Retirement Now blog, has been selling S&P 500 options systematically for about 15 years. He trades every day, mostly 0DTE and 1DTE SPX, and as of the May 2026 interview his last losing calendar month was June 2022.

The interview is about how a long-time premium seller thinks about risk: sizing for a once-in-40-year tail event, hedges and stops that did and didn't work for him, and option income in early retirement. The results below are his own live figures as he described them, not backtests.

## How he started: selling the downside risk premium

Karsten says he has been "option curious" for 25-plus years but started trading options in 2011. Working at a large asset manager, the one thing he was allowed to trade was options on ES futures.

His reasoning for selling puts comes from basic finance. Stocks earn more than bonds because investors are paid a risk premium. In his view, nobody pays you a risk premium for buying a call; the upside is more of a lottery payout. "The downside is actually where the juicy premium should be." He expects that premium to persist, because many institutions must buy insurance no matter what.

He started with small accounts. The account grew, he retired, and option income from a sizable taxable account is now a cornerstone of his early retirement. He says it almost covers his living costs.

## Why he moved to 0DTE and 1DTE

The core idea has not changed: sell downside insurance (puts) and "lottery tickets" (calls). Duration has. He used to write longer-dated options. Now his bread and butter is the very short term.

His argument is the law of large numbers. If you have a small edge, you want as many small, independent bets as possible, like a casino at the blackjack table. The more hands played, the more certain the casino's result.

He still writes a few options 30 to 150 days out, mostly after a volatility blowup or a drawdown in the S&P 500.

## Mechanical, with discretion on the premium

Karsten trades the same way every day. The discretion is in where to sell. Some nights he is fine with 10 cents of overnight premium, sometimes as little as 5 cents, just to keep a daily track record. Other nights he wants 40 or 50 cents.

His risk models estimate the chance of a strike being hit and how far in the money it might go. He thinks in marginal terms: is going from 20 cents to 25 cents of premium worth the extra chance of that strike being hit?

He keeps a record of every contract. His personal account is at about 10,000 contracts a year across overnight and intraday trades, and client accounts add roughly 10 times that.

## Position sizing for a once-in-40-year event

People often ask him what would happen in a repeat of October 19, 1987. His sizing works like a value-at-risk model. He takes an extreme move, measured in standard deviations of today's risk rather than as a fixed percentage, and sizes so that a once-in-40-year event would cost him something like 10%, 12% or 15%. In the absolute worst case, he estimates losing a year or two of option premium.

That matters because of how good these strategies can look. Karsten has posted an information ratio of about 9, and above 10 in some calendar years, meaning return was roughly 10 times annualized risk. For comparison, he puts the stock market's ratio at around 0.4.

| | Equities (his rough figures) | His option selling (some years) |
| --- | --- | --- |
| Return vs. risk | About 7% return, 18% risk | Return about 9–10 times annualized risk |
| Ratio | About 0.4 | About 9 to above 10 |
| Main danger | Broad drawdowns | Left tail: rare, large losses |

High ratios come with left-tail risk. In his view, a 10% to 12% hit is very easy to work out of. A 75% loss takes a long time to recover from, even at a very high information ratio. He is wary of strategies that make 50% a year with some real chance of losing 90% in one year.

## Why he abandoned VIX call hedges

Karsten tried buying VIX calls as a hedge, staggered across several future expirations. When volatility spiked, only the front contract went in the money. Because of steep backwardation in the VIX term structure, the later contracts barely moved. He did not lose much, but he stopped.

He also considers selling VIX futures or VIX calls a bad way to sell volatility. His example is the XIV ETF: it was up about 100% in some years, then down 96% in one year. By his math, recovering from that would take something like a 22x gain. There is no natural limit on the VIX, he says; nothing in theory stops it from going to 200 tomorrow, which makes position sizing very hard.

## Stops: from none to stop limits

From 2011 until about 2021–22, Karsten mostly used no stops. That made him serious about sizing: if you might have to eat the full loss, you don't use 10x leverage. His rule still holds: never write an option you would not be willing to hold to expiration.

He now uses stop limits, with the limit a few ticks above the stop. He says he did not suffer in "stopageddon," the October 2025 episode when many traders got very bad fills.

His honest scorecard on stops:

- **They have cost him money on net.** He tracks the active return on his stops, and the batting average is still negative. Letting everything expire would have made more.
- **His 2026 stops had all been false alarms** at the time of the interview. He would rather pay a dollar of premium on a false alarm than get caught in a runaway move.
- **One mattered a lot.** On April 9, 2025, the tariff announcement day, plain stops got him out of close to 200 short calls across different strikes before they went deep in the money.

Option Omega's backtester supports several [stop-loss types](https://optionomega.com/blog/option-omega-stop-loss-types-imsl/), including per-leg, trailing and IMSL stops, so users can test how stops change a strategy.

### Delta hedging as the alternative

For larger accounts, Karsten sees delta hedging as a possible way around bad stop fills. If a short put goes from about 0.01 delta to 0.05, instead of buying it back into a thin market, he would sell ES futures equal to the change in delta. The futures market is deep, and futures prices don't jump like the bad option fills seen in October 2025. It can be automated, but he says it is not practical for a $10,000 or even $100,000 account.

## Trading through COVID, the yen carry trade and April 2025

- **COVID:** He says March 2020 was still his most profitable month. Puts 20% out of the money for one day still paid decent premium.
- **Yen carry trade (August 5, 2024):** The move jumped over his stop. His strike was far away, he decided to let it ride, and it came back. His rule of thumb: crises driven by the Fed, like early 2016 or December 2018, tend to be short-lived; wars and pandemics can have more staying power.
- **Tariff volatility:** Short calls used to be his more profitable side, until January 20, 2025. In 2025, his premium capture rate (PCR) on calls was worse than on puts intraday for the first time.

## How daily expirations smoothed his returns

Since SPX moved to daily expirations in 2022, every day is a 0DTE and 1DTE trade. In his view, averaging over that many more trials gives a smoother ride, and he noted he'd also been using stops a little more. As of the May 2026 interview, his last calendar month loss was June 2022. His percentage return is lower than it was, because he makes the same money on a larger taxable account.

## Options as retirement income

Karsten calls options trading "the best of all worlds" in retirement: it keeps you engaged, and watching a close near your strike can be almost better than the last two minutes of a basketball game. The math is what matters most to him. Earning an extra 0.5% to 1% on a portfolio could move a withdrawal rate from 4% to 5%, a 25% increase in the retirement budget. He also notes the tax treatment of SPX under Section 1256: 60% long-term and 40% short-term capital gains.

His warnings:

1. **Watch for Dunning-Kruger.** Do not put a retirement portfolio behind something that worked for three weeks. Backtest it, including through events like the pandemic.
2. **Try to talk yourself out of it.** Challenge the strategy the way a scientist would and look for blind spots.
3. **Monitor and be ready to stop.** April 2025 was hard, especially for 0DTE. In 2026, as of the interview, the first three months were good and April was still up, but not great.
4. **Start in the shallow end.** Ideally, gain experience while still working.

## Key takeaways

1. **Many small bets.** Karsten moved to 0DTE and 1DTE to spread a small edge over as many trials as possible.
2. **He sizes for the tail.** By his model, a once-in-40-year event would cost something like 10% to 15%, not wipe him out.
3. **VIX calls did not hedge well for him** because of term-structure backwardation.
4. **He treats stops as insurance.** On net they cost him money, but one day in April 2025 justified them in his view.
5. **Daily expirations smoothed his returns, he says.** As of May 2026, he hadn't had a losing month since June 2022.

## Test your own short premium

Karsten's advice is to check how a strategy behaved through events like COVID and April 2025 before trusting it. In Option Omega you can [backtest SPX option selling](https://optionomega.com/features/backtesting/) across those periods, compare stop types and slippage, and [automate the rules](https://optionomega.com/features/trading/) once you are confident in them. To read more from Karsten, visit his blog at [earlyretirementnow.com](https://earlyretirementnow.com).

**[Start a free trial](https://optionomega.com/pricing/)**

*Watch the full video: [15 Years of Selling SPX Options: What Big ERN Actually Does (Karsten Jeske)](https://www.youtube.com/watch?v=zQA93nL9Nh8).*

*This post summarizes a conversation from May 2026 and is educational only. Options trading involves substantial risk.*