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9 Lesson Option Course
Lesson 8- Sure, Steady, Reliable
Monthly Income.
In this lesson I will give you examples
of trades that make 10% in a month. It's possible
and there are people, like me, doing it each and
every month. You can either leave your profit
in the account and let it grow, or withdraw it
to live on. I like reliable monthly income
In previous lessons I already walked you through
a real life Iron Condor trade that we did. Let's
look at some others.
On November 11, 2008, SDS closed at 95.59. SDS
has been trading in a range and is coming back
from the bottom of the range. The closing price
for the November 95 Call was $7.3. This option
has ten days to expiration.
A covered call would work like this: We feel
this ETF will continue to go up. So we buy 100
shares at $95.59 and sell 1, 95 Call at $7.3.
If SDS is above 95 on expiration day, our option
will be exercised and we will have to give away
our 100 shares. But we will have a profit of $671.
100 shares at 95.59 = debit of $9559
option sold = credit of $730
100 shares sold at 95 = credit of $9500
9559-730-9500= profit of $671 in 10 days.
671 divided by 9559 = 7% return in 10 days.
We also do other types of trades such as butterflies,
calendars, and credit spreads. Which strategy
I choose depends on market conditions. When volatility
is very high, it's great to do covered calls because
you get more money for the calls. When volatility
is medium we can do well with condors and butterflies.
When volatility is in the low range I look at
calendars for nice profits.
The Iron Condor is a staple though. This is a
strategy we put on every month. That's the best
way to make money with it. Every month, around
a certain amount of days to expiration, we put
on the trade and watch it. It's one strategy for
reliable monthly income. Most months we win without
any adjustments. Some months we have to make adjustments
or else I just decide to get out with a small
lose.
October 2008 was a wild time. Never before has
volatility in the markets been so high. It was
a dangerous time for all traders and it was a
month that our strategies would not have worked
very well because the market was moving too much.
The DOW was up 500 points one day, down 900 points
the next day. And so in October, we were lucky
enough to stay out of the market. The market did
not act "normal" in September and I
decided to stay out in October.
How did I know? Well I watch the markets everyday.
I stay on top of my trades. I talk to other professional
traders and we share notes and thoughts on a regular
basis. After you have been doing these trades
for a while, you get a "feel" for the
market. You know when something is not right.
It's like driving your car. When you hear a new
noise or the steering wheel doesn't respond they
way it should, you know. So you stop the car to
see what's wrong or you take it to the shop. In
this game, we just stay out of the market until
things gets better.
The good part is, things usually settle down
in a few days. But in October things never settled
down. But I want to make something clear. October
was very, very different. It was something option
traders and all traders for that matter, had never
seen before. October was not a normal occurrence.
Steady, Reliable, Monthly Income
My style of trading is not for people who want
to hit a grand slam and make a million dollars
overnight. It's not for people who want to sit
at the screen all day. It's not for those of you
who are addicted to action. You won't have any
stock picks to give away at parties. If you have
to make trades everyday, this is not for you.
It's also not for someone with multi-millions
to invest.
The trades we do are designed to make a steady,
consistent income. We want a few percentage points
a month. At the end of the year our results are
impressive, but look at any one month and they
are not so flashy.
Some people ask me, if my system is so great,
why don't people like Warren Buffet do these trades.
Actually, he does. It is known that Warren is
a seller of puts. But he does it for a different
reason, and in a different way. He chooses a company
that he wants to buy more stock in. Then he decides
on a price he would like to get in at. If there
are Puts at that price, he will sell those Puts
and get a credit.
If the stock price stays above his strike price,
his options expire and he keeps the credit. Then
sells more Puts. If the stock price drops to his
strike price or lower, he buys the stock at that
price - which is what he wanted to do anyway.
Plus, he keeps the credit giving him a discount
on the stock.
We don't want to buy stock, so we don't use that
strategy. We want income and regular returns.
Even though we can earn 10% a month, I would be
happy with 5% a month. That's still 60% a year.
The reason Warren and his billionaire friends
do not use our strategies is because they have
too much money. If they tried to do our trades
using a million dollars at once, they would mess
up the trade. They would not get the right price
from the market to make it worthwhile. They could
do the trade with a couple hundred thousand. But
10% on 200,000 is only 20,000. And to someone
with billions to invest, that is just not worth
the time.
This is also the reason I limit memberships to
my site. I don't want too many people doing the
same trades or else it will mess it up for everyone,
including me. That's why I don't just offer one
trade a month, I try to offer 3 to 5. If a trade
is too "crowded", you can wait a day
or two to put it on, or you can just wait for
the next trade.
You don't have to do every trade I release.
By limiting the number of subscribers and by
choosing liquid trades I make sure that everyone
who wants to put on the trade can.
Very large traders do these trades as well. But
why would they advertise or teach others how to
do it? If you could do what other people think
is impossible, would you teach others? Probably
not. If too many people start doing these trades,
it can ruin it for everyone.
In our next lesson I will show you why what we
do is relatively new and why many people don't
know about it.
Let's
Go to Lesson 9
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