I am looking for suggestions for general methods for income using options.
"Best" is difficult to quantify but I believe that selling covered calls is a safe way to create income but it comes at a cost, you might lose stocks that you didn't want to sell. Covered calls work best with stocks that are flat-lining. With rising stocks your stock is likely to be called away. With falling stocks, the calls stops you from selling until the options expire or you buy them back.I like to sell medium term options, six months to a year to expiration. Shorter term ones don't pay much and longer term ones tend to have lower annualized yields.Most important is to calculate the yield. One has to make sure the yield, if called, is above a minimum. I usually price three or more strike prices and two or three expiration dates to find the most suitable option to sell.Denny Schlesinger
Options can be very rewarding if you use them correctly. There are many strategies to generate income using options. The one that I am most successful with is day trading debit spreads. Typically the correlation between strategies is the higher the risk the higher the reward. I like to think of my strategy as low risk high reward. Another common strategy is covered calls or selling options that are covered by owning the stock. Another similar strategy is leaps rather than covering your short position with the stock you cover it with options. Leaps are great for smaller money cause you can use them with larger expensive stocks that would cost way to much money to actually buy the shares. Credit spreads are also another way to generate money by taking advantage of the time decay in options. Just a few strategies that I believe are most common...but no matter what strategy you use, you will have to practice (trial and error), learn from your mistakes (and successes), and fully devote yourself to becoming the best if you want to have success. Goodluck!
what about some recent examples to go with thwe categories you mention?
Buddy46,You day trade debit spreads? Really? Do you mind sharing your win-loss ratio? Or what stocks you choose to do this with? You must have technical entries and exits too. I am fascinated that you would trade this strategy on a daily only basis. I have mild success with shorter term debit spreads(greater than a week, but less than a month/6 weeks), but don't do the strategy that much as I prefer either selling premium or doing diagonal spreads.BlueCollarTrade
Yes it is actually a very simple strategy. The debit spread I specialize in trading is the long iron butterfly. Currently YTD I am 27/28 (96%) having taken my first loss last week (had I held on for 2 more minutes I would have won) and have a cumulative return of 359.2%. It is hard to understand/explain how my strategy works but basically the spreads bid/ask is very large and its almost like buying something on sale and returning it for full price the same day. The success of the strategy relies on having a great understanding of what a good fill or price is on a given day. Throughout the day there are 'sweet spots' so I call them that you can get the spread for a great price. The long iron butterfly is designed as a play on a stocks movement but often times I never need the movement to make money. The wingspan of my spreads is usually $5 so for example last week I got filled on a $5 wingspan spread for $3.40 and sold it back for $3.80 or a $.40 profit in the same day. With 10 contracts that was $400. The lengths of the trades vary from a few minutes to a few hours. The key is that when I do take a loss it is relatively small compared to wins. My only loss of the year was $.05 or $50 will 10 contracts (these numbers dont include my fees). I run a service where I teach people all of this and trade live with them...I dont think I can post my site here I dont want to get in trouble but my website has a video of a sample trade and more information on what I do. But all in all it doesn't require any technical analysis or charts and has been very successful for me.
oh yeah and the candidate stocks I use when trading $5 wingspan spreads are stocks over $300
The thing that springs to mind is a quote from long ago:"Stock market history is littered with people who misunderstood the risks they were taking on."
The risk for this strategy is actually quiet low...because options have time value, the spreads will not drop below a certain price range on a given day. It is rare that I get in a trade and have to cut a loss but the only way to be a successful trader is to be discipline, have rules, and stick by them. If at the end of the day I can't sell off for a profit I just cut my loss and move on...and like I said early loses are small in comparison to and average winning trade(unlike other strategies where one bad trade can erase weeks of good ones). On the other hand, you do take on a lot more risk holding them for days on end. If the underlying settles near your longs late in the week then you can take a big hit as the time value has melted away...but in actuality only a small percentage of the money you have in the market is actually at risk on that given day.
The risk for this strategy is actually quiet low...And the counterparty knows this, and that's why they are willing to give you a fat profit?The market has been zooming up for the last several years. There are many strategies that will work fine in such a market ---- but will crash hard in any other type of market.Your profile says that you've been fine-tuning and perfecting your options strategy for 2 years. When the market finally decides to do something other than going straight up, all your tuning & strategies will go right out the window.To repeat: "Stock market history is littered with people who misunderstood the risks they were taking on."David E. Hultstrom, of Financial Architects: "Derivatives are a zero sum game that requires someone else to lose money for you to make money. That is unlikely to happen consistently.""Options (like futures) are a zero sum game. The ONLY source for the winners' cash is from the losers' hides. In options, no money is created or destroyed; it simply is shifted from the writers to the buyers, and back again."Hmmm, well, okay, I decided to see what I can find about long iron butterfly via google.Offhand, it sounds like a complicated strategy that would dazzle beginners that think complex = profitable."involves four options" -- therefore you'll have a lot of friction due to commissions and bid/ask spreads.Looks like small risk and small upside profit."Maximum Risk = Limited to the difference between the strikes minus the net creditMaximum Profit = Limited to the net credit ""Who Should Run It: Seasoned Veterans and higherDue to the narrow sweet spot and the fact you’re trading four different options in one strategy, long iron butterfly spreads may be better suited for more advanced option traders.:Read more at: http://www.optionsplaybook.com/option-strategies/iron-butter...Sounds like the most profit goes to the person (*cough*buddy46*cough*) who runs a for-fee service.
I would like to know how a rising or falling market would effect this strategy? It is a non-directional spread meaning it will make money no matter what way the market moves. Not to mention they are all short-term positions(some lasting only minutes)...When you are in the market for such a short period of time the long term outlook has no effect on these positions whatsoever. The link you attached is an iron butterfly which is a credit spread but if you found the right page to tell you what a long iron butterfly is you would see that the maximum loss is the net debit paid for the spread...and yes as I mentioned earlier if you hold these positions long they can be very risky if the underlying does not move away from your longs an the options lose time value...But I am sure you know as well as most investors/traders that for a stock thats $300-$800 to move a few dollars as percentage it is not very large (often times movement is not even needed). Yes occasionally they can trade in a very tight range which is the worst case, but the odds are in your favor, and isn't that what trading is all about? putting the odds in your favor. Yes this spread is slightly more complex than just buying a put or a call but having taught many people over the years, some with no options trading experience at all, it has been quiet easy to teach and for students to understand...many of times the best things in life aren't down the easy road.As for my service you are certainly entitled to your own opinion. I take a lot of pride in having successfully educated many people how to use my strategy. I do not participate in these boards to push my product, rather I enjoy sharing my opinions and building my own knowledge base on subjects I am passionate about. Options are not for everyone as I mentioned earlier. I also think its is a waste of time to try to tell me how my strategy works...But everyone is certainly entitled to there own opinions.
Buddy46,You wrote, I also think its is a waste of time to try to tell me how my strategy works...I really don't think Rayvt's posts were for your benefit...- Joel
http://www.optionseducation.org/strategies_advanced_concepts...For those interested this is the correct explanation of what a long iron butterfly is...Joel...I don't think they were for anyones benefit as far as the topic of long iron butterflies goes. What Rayvt explained was a short iron butterfly. I just think its hard to knock something when you have to look it up to figure out what it is.
Do you leg into the Long Iron Butterfly or enter it as a single trade(all wings and body)? I am interested in learning more about your service on this trading strategy.
I always open and close the trade as one single trade
Why do you use a Long Iron Butterfly as opposed to a Regular butterfly using all calls or all puts? Does the combination of puts/calls create the arbitrage situation? Thanks in advance for answering all of these questions!
Also keep in mind you need at least $25,000 in your trading account to day trade options.
Unless you trade in an IRA account in which case you can day trade all day long with no minimum balance required
"I am looking for suggestions for general methods for income using options. "If you have a portfolio of stocks, selling SPY or QQQ call spreads is an easy and very conservative way to "enhance" your portfolio. If one's portfolio is $200,000, one could sell 10 - delta 35 Calls, and buy 10 calls 2 or 3 strikes higher. here's a good video on the topic by Don Kaufman @ ThinkOrSwim: https://www.youtube.com/watch?v=CclH7tFNdc8.................. learning 'neutral strategies' is a good way to get income, but they're much harder to do than the above method. martin
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