The 3 Steps to Steady Options Income
There is a lot of yelling in the Army.
It’s a big part of basic training. I’ve heard plenty of drill sergeants loudly call recruits “maggots,” just like in Full Metal Jacket.
But take those same loudmouths out of the lineup and into the rifle range, and suddenly they sound like certified yoga teachers.
All day long, they calmly and quietly remind us to “breathe.”
Breathing is the third of four marksmanship fundamentals:
Breathing steadily shows you are in control. It gives you a better chance of hitting the target. And once you’ve mastered the other three elements, you’re practically guaranteed not to miss.
Amber Hestla on the range during a deployment in Kuwait.
I liked the rigorous process of shooting in the Army. After all, a strict process minimizes risk. And when I switched to a finance career in 2008, I realized the same was true for trading.
In order to be a successful trader, you need to follow well-defined processes — like the one I use in my favorite options income strategy…
My 3-Step Options Income Strategy
Fourteen years ago, I started my career in finance as a trader at a registered investment advisor. Mike Carr was an equity partner at the firm, managed over $200 million with his relative strength strategy, and returned 48% to his clients in two years.
I recently joined forces with Mike Carr once more — this time to provide weekly options income trades for subscribers of his newest research service, Market Leaders.
I do this by selling options. When you do this, you receive an upfront credit to your account by selling an option to another trader.
Normally, selling options carries serious risks. If you’re wrong and the option goes up in value, there’s no limit to how much you’ll need to pay to get out of the trade.
But my strategy doesn’t carry that risk. I’ll explain why in a bit.
For this income strategy, there are three core fundamentals:
Identify volatile stocks
Confirm the trend in volatility
Select appropriate options
First, I use a screener to find volatile stocks — that is, stocks making large moves.
Then I search for options on those stocks with high implied volatility, or IV.
IV is a factor in options pricing. It shows how much the stock is expected to move before the option expires. When IV is high, options premiums are high. I want high IV to maximize income on the options premiums I sell.
Then, I look at the direction of the trend in volatility. I created my own indicator for this, to fix the problems found in other volatility indicators like the VIX.
The chart below compares my indicator to a typical volatility indicator. My indicator is in the middle, with the red and purple lines.
Typical indicators, like the one at the bottom, are spiky. They move up and down with volatility, but they fail to show any trend.
(Click here to view larger image.)
I look for times when volatility is high and falling. This tells me options prices are high and the trend is most likely up.
Finally, I search for the right options to benefit from the trend. In this example, with prices rising, I would look to sell put options. These would likely expire worthless, meaning I would keep all the premium I earned for selling them.
That’s the general idea. But remember what I mentioned above about the unlimited risk in selling options?
My strategy does something different, which completely eliminates this risk…
This isn’t your usual put-selling or covered-call strategy.
With this options income strategy, you know exactly how much you’re risking on each trade — down to the dollar. And by placing these trades every week, you can turn small, consistent gains into a considerable nest egg.
That’s why I call them “Safety Cash” trades.
The moment you join Market Leaders, you’ll get a free report with the full details of my Safety Cash strategy. And a video tutorial that shows you how to place these trades in your account, step by step.
We’ve only recently started featuring these income trades as a bonus feature in Market Leaders…
And so far, all of the trades I’ve found have handed subscribers 100% returns in less than a week.
Remember, these trades are just a bonus feature. You’re also getting exclusive access to Mike’s portfolio of the market’s strongest sectors — the tickers with the highest relative strength. And a monthly option trade on one of his top picks.
You just dedicate 10 minutes a month to maintaining your portfolio, and spend the rest of your time as you please. If you choose to take the income trades, that’s another 10 minutes a week.
To get immediate access to my weekly income trades and Mike’s portfolio for just $4 a month, click here now.
And be sure to check in this Friday, where I’ll walk you through a live example of one of my Safety Cash trades.
Senior Analyst, True Options Masters