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Using Options to Create a Steady Income Stream


Will there be a follow up to your Rookie's Guide To Options book that
will go over more advanced concepts? I'm thinking to describe about
various issues in managing a monthly income portfolio.



Thanks Art for leaving the above comment/question.

Writing a book is a big project and I have no plans for another at this time.

Monthly Income

Warning 1: 
Despite the hype that you find all over the Internet, a steady
income is not guaranteed.  Instant riches are not yours for the taking.  Please don't fall for that nonsense.  But, you can create a portfolio with a high
probability of consistently being profitable.  This is not a 'gimmie.' 
You must understand how options work and expend some time and effort learning how to manage risk.

Warning 2:  There is no 'magic' strategy.  Most of the hypesters buy iron condors, and if you are looking for an income stream strategy that's at the top of my list, buying iron condors is it .  But other strategies can be used to provide an income stream.  Here is where I differ from those who promise wealth for only $X per month: 

It's not the strategy that delivers the gains.

It's your ability to manage money.

It's your ability to manage risk.


If you are interested in managing a portfolio with the objective of earning monthly income, any of the premium-selling strategies can work.  Some methods are riskier than others (covered calls and naked puts) because they have very little protection against a market downturn.  If you have a market bias, you can be bullish (sell put spreads, write covered calls, sell naked puts), bearish (sell call spreads); or neutral (buy iron condors).

To generate those profits, you want to have a good understanding of how these strategies work.  The Rookie's Guide to Options teaches, in detail, how to use these methods.  There are also many blog posts right here that will get you off to a good start with these strategies.  Use the Lijit search above (left) to find appropriate posts.

I've also spent a good deal of time discussing risk management, so if you dig, you can find more than enough to get you off to a good start.  Take the time to learn, you don't have to begin trading tomorrow.

Warning 3. The problem with calling it an 'income' strategy, is that there becomes a 'need' to make money every month.  That's just not going to happen.  Taking extra risk in an attempt to squeeze a profit from a position that has turned against you and has made the chance of losing a bundle reasonably likely – that's a position you must learn to FIX immediately.  In fact, for best results, you don't want to be in the situation of owning such a position.  Perhaps a minor adjustment or two could have been made earlier to make the position safer to own.  But the bottom line is that 'needing' an income every month can result in too much risk taking.  If you avoid that mindset, you will make money over time.

Then there's the collar strategy. It eliminates all major downside worries.  The question is which options to trade and your willingness to accept smaller returns in the name of almost complete protection.  That's too conservative for many, but you must find your own comfort zone when seeking an income strategy.


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