So on SPY the risk is fairly high to the reward. As @fuzzballl pointed out would take 33 winning trades or so to make up for 1 loss. However @jeffcp66 has figured out how to adjust credit spreads and losses could probably be contained to a reasonable level or a break even.
Regardless, I think the most efficient way to play this would be with /ES options (so excludes IRA accounts, need margin).
Full disclosure, I used to do this and was hugely successful, paid cash for 2 VWs in 6 months but then lost my shirt and a bunch more on 8/24/2015. My wife swore me to secrecy that I would never tell anyone exactly how much but will leave it as I gave back 6 months of profits in 1 day. Enough for another 2 fully decked out VWs.
So I figured out my issue since then and it had to do with leverage and a broker that did not understand futures options (optionsxpress). TOS and Tradestation allowed me to adjust my positions and broke even 2 weeks later. I have been doing this a little since and as long as you keep the leverage under control can manage the losers. I have not been posting because if you do not understand that part it is very risky. If you guys want me to post these trades I will. I tried it with oil but harder to do since no weekly options.
So here it is with a few tweaks. Combo of tastytrade and fishback techniques with my own addition.
Sell the closest to 45 DTE strangle on /ES. Currently would be the 37DTE 2405 put and 2620 call. These are both delta 9 options with prob. of 90% of being OTM at expiration. Current margin is $3895 per contract. They typically decay to delta 4 options in 3-4 weeks and can take 50-60% profits then as well. Then roll to next cycle closest to 45 DTE and start over, rinse and repeat.
Here is my tweak, I keep 6k on hand for each contract, that way I can cover with short or long /ES contract on a sustained move. If the delta gets to 30 will either roll, or if it appears will keep moving use the /ES contract. At that point you become directional but your risk is covered if you have 1 contract for every option and the only extra margin is to fulfill the futures contract. To the upside a covered call and downside a covered put. If you are exercised the contract fulfills the option, both positions close and you just made a tone of cash. That only happens a few times a year if lucky.
Advantages over SPY: trades almost 24/7. I tried to adjust at midnight on 8/24/17 and then went to sleep but the market moved another 300 points over night, only panic attack since getting caught in an avalanche skiing back country 20+ years ago.
Tax advantage 60/40 treatment like SPX
Much lower margin than on SPX. To do 1 contract on SPX is like 109k margin.
Liquidity although was not so good 8/24/17. The spreads went 25 points wide that day and getting anything filled was hard to impossible.
The put call/skew is still really good since 1987 so you could also do it one way directional on the puts and still have good return. Then would only have to adjust in 1 direction. The 2405 put is 4.85 as I type this and the 2620 call is only 1.85.
Disadvantages: a flash crash may move too quickly to cover, see above and you can lose a lot more than you get out or put in.
The double leverage of the options on the futures cuts both ways.
2 /ES = 1 SPX = 10 SPY so effectively 10-20:1 leverage compared to SPY options which are already 10:1. Like nitrous on a turbo car, fun until you melt the turbine wheel and the resulting shrapnel punctures the engine block! Been there done that and have the t-shirt and don’t want to do either again.
So that’s the best way I can come up to trade the SP500. Thoughts, comments, suggestions always appreciated and if you want me to post these trades I will. Just understand the leverage before doing it.