July 28, 2017

Options Income Strategies for Monthly Cash Flow

Sell in May is upon us.

And if history repeats itself we could be in for a rough summer, especially given the current overbought nature of the market.

As I discussed in my last post the phenomenon is real. The average gain over the next four months is a paltry 0.35%.

So the question is, how can we as self-directed investors can we increase our wealth or more importantly, receive steady income during the “summer doldrums”? Besides the archaic and capital intensive way of purchasing dividend-based stocks, selling options is the only other alternative, at least as far as I’m concerned. Options selling strategies, allow us the ability to take money out of the market on a steady and consistent basis, but the best part is that we have the ability to choose our own probability of success.

And having the ability to choose our own odds for each and every trade we make creates some of the best income strategies in the investment universe.

Let me explain.

The Statistical Truth

I hate to say this about some of my fellow options traders, but I can’t tell you how much I abhor those in the industry (you know who you are) that absolutely ruin the true benefits of options for the self-directed investor. Claims of outlandish 300%, 400%, 1200% in just a few days. Encouraging the use of low-probability out-of-the-money puts as a predominant strategy without the mention of selling premium.

It’s frustrating. It’s frustrating to see so many so-called gurus with no real-world experience act as options traders when their services fail time and time again. Again frustrating.

For some reason investors don’t crave what’s truly important, realistic strategies with realistic gains. Transparency. Knowing that trading isn’t easy and is a life-long endeavor and that while the journey may be bumpy at times over the long haul it is worth all of the effort. A long-term approach to short-intermediate-term trading with high-probability trades as its foundation. Selling credit at every extreme. Always talking about the importance of position-sizing. Always considering risk-management.

Why would people rather join services that tout such outlandish claims? It is beyond me. Are self-directed investors really that gullible? Why do they continue to fight statistics?

It is my hope that I have carved and will continue to carve a slice of decency and transparency into the options world. I am certainly not perfect, but I know that selling options is a valuable strategy with an overwhelming statistical advantage. And it is my goal to teach as many self-directed investors as I can about the benefits they offer.

Use Probabilities Now!

Some people will try to take a simple concept and sprinkle it with some mumbo jumbo to make it seem complicated and then claim only they can explain it to you! Don’t listen or don’t buy into any such load of bunk!

Take options. Yes, a lot of people, maybe even your stockbroker, will tell you options are too complicated and confusing. What they may really be telling you is options are something they don’t want to spend the time to understand, so they don’t want you to trade them either!

It was only ten years ago that there were only a privileged few investors who could take advantage of things like streaming quotes and real-time options chains. Options were shrouded in mystery and deemed too complex for the average Joe – to be traded only by the so-called “sophisticated” professional investors.

Since then, however, seismic changes in the options world have leveled the playing field for individual traders and investors. Thanks to advances in technology, innovative trading tools, and better access to what was once privileged information, the self-directed investor is now equipped with the ability to trade like a professional options trader.

So, now that we as self-directed investors have the same technology as professional traders why aren’t we applying the technology in the same way?

We all know that a stock or ETF only has a 50/50 statistical chance of success. That’s right, no better than a coin flip. But, what most self-directed investors don’t know is that there is a way to increase the statistical chance of success to well above 50/50. Professional options traders do, and they have been using powerful, statistically-based strategies for years. But, as I stated before, now we have the same technology. Now it is up to us to use it to our advantage.

If I could choose one of the more powerful tools offered in today’s options trading software it would be the option theoreticals offered. Probability of Expiring (ITM or OTM) is the most informative data point among the options theoretical and one that I employ every day for my readers at Crowder Options.

Tomorrow I will go over some real-world examples of how I use various credit spreads strategies to my advantage. Stay tuned!!!

If you are a believer in a statistical approach towards investing please do not hesitate to try my options strategies. I use simple mean-reversion coupled with probabilities for each and every trade. Give it a try, it’s free for 30 days.

If you haven’t, join my Twitter feed or Facebook.

  • Johnsmith

    Hi Andrew,
    Thanks for post such as very useful and very lovely post about options strategies. Nice job you have done on this blog..The most self-directed investors don’t know is that there is a way to increase the statistical chance of success to well. Anyhow, What-if Options is a web portal for testing financial strategies. A special focus is given to Stock Trading Strategy and Options Strategy that involve buying and selling options as well.