P&L 10/29/2010 - Portfolio up 9.01% in current option cycle

Income trade is working as planned and will mostly like close up the trade for current month, sometime next week as we have achieved our price target of 8%+.

P&L as of close of market 10/27/2010

No need to adjust position so far

So far our income trade is working as planned and we are comfortably within our strike points both for PUTS and CALLS. If we achieve a target of  8% + by next week we will begin to scale out and drastically reduce the risk for the the next three weeks before options expiration.

Portfolio up 7.3% in current option cycle

Posted P&L for portfolio as of today 10/27/2010 - see P&L below

Portfolio Update

Portfolio is up 7.3% with three weeks to expiration. As stated earlier this is a hands off approach to investing or income generation. As long as our Delta's stay within our comfort zone, we let time decay work in our favor.  Once again, thanks for following our trades and hope you are learning a new way to generate income.

Update of the Portfolio - Graph

With about 24 days left to expiration, the portfolio is in good shape and as the graph shows we are comfortably within our range. Most of the premium on the Put spread has been achieved, since there is only .10 cents of premiums left, we might have to roll the 550/560 puts to collect additional premiums if the risk reward were to justify it. Otherwise any further decay close to .05 cents on the put side will  result in closing the Put side of the spread and booking a net profit of $2250 on that side of the trade. We will then have only the call side of the trade open.

Please, send me your comments if you have any questions as to the mechanics of how our income trades work. Thanks for visiting our site and hope you are benefiting from our trades and learning as well. For those new to income trades. it is worth pointing out this is a skill and it takes a while to get good at it, so be patient and keep at it and follow the blog.

What we try to do with our income trade

We create our income trades by initiating a  CALL credit spread and a PUT credit spread on the same stock or index. We try to pick our strike prices to be at least two standard deviations from the current prevailing price. We also set up our positions with enough time before expiration, so we are selling time premium. Our instrument of choice is almost always an index and there are a lot of indicators we factor in before we initiate the trade including the volatility index - VIX.

Our instrument of choice is always an index because at the very least we want to eliminate the "Problem of the Lemon" - Which states that the person selling you a used car always knows more about the used car than the buyer can ever know.Why is this relevant to stocks - the individual investor in a stock is always faced with the problem of the Lemon, Despite all the securities laws and enforcement- corporate insiders, wall street analyst and hedge funds with their extensive network of informants are always going to know more about a stock and react faster than the individual can ever know. When you coupled that with the prevalence  of High Frequency Trading (HFT) the individual investor is fully disadvantaged trying to trade individual stocks . (please google HFT and read all you can on High Frequency Trading). We there fore structure our index trades utilizing indexes like the Russell 2000 index (RUT) - The RUT is an index that contains 2000 stocks and we eliminate the Lemon Problem because it will be virtually impossible for any one to have inside information on 2000 stocks at any point in time. It is also a diversification solution, which is basically the only free lunch you can get in finance and in investment. The other instrument of choice is also the S&P 500, which is an index containing 500 stocks of the leading companies.

Finally, we treat our income trades like an insurance business, where we are basically writing catastrophic insurance on indexes. So like any insurance company there is a chance though slim that once in a while a catastrophe might hit, so we closely monitor our positions and readjust or re insure the position if the indexes begin to move with extreme volatility. The goal is never to take a catastrophic loss.

Mechanics of the Trade - Credit Spread

The basic goal of an income trade is to generate a net credit to the account through a credit Spread. Credit Spread - The simultaneous sale of one option and purchase of another option that results in a credit to the investor's account. Thus, more funds are received from the sale than are required for the purchase. An option credit spread example would be buying a Jan 50 call on ABC for $2 and writing/selling a Jan 45 call on ABC for $5. The net amount received (credit) is $3. The investor will profit if the spread narrows or if ABC never gets pass 45 

In the example above we initiate a credit spread on Red Hat (RHT) -  We sell the December 45 Call and Buy the December 50 call for a net credit of .67 cents, we sell 10 contracts so we take in a total premium of $670. As long as RHT does not go beyond 45 by December we keep all the premium that we took in.


Just like we did above for calls we can initiate a credit spread for Puts as well.

Portfolio Update

Net Theta Decay $3000 so far which is a 6.75% gain with 28 days left to expiration. IF we stay within our projected Deltas we should see more Theta decay next week. If we get within 8%+ next week we might close the trade and  wait for the next cycle as our goal is to generate a net 8%+ per month, with defined and limited risk.

Updated Profit and loss for Portfolio - Already up 5% in two weeks

The trade is going as planned. Theta decay has began to set in and will only accelerate with each passing day.

Portfolio Update

I will be posting an updated portfolio position at the close of market today. So far the income trade is working as planned. Since this week is the begining of the option cycle for November Theta decay has began to set in. Trading for income requires a lot of patience and at the heart of it, it can be boring, but the end goal of generating income is the most important factor here. If you are looking for contstant action and daily buy and sell then this is not a stratgey for you. But if your goal like mine is to generate consistent income then just follow the trades and check daily for updates.

I do post updates when required, but do make it a point if you are following the trade and have set up a similar trade in your account to check daily. Because about 25% of the time we might have to adjust the trade to reduce our Delta or re position the call or the put side, so our nest is not bridged.

Please, send me your comments if there is anything on your mind.

Portfolio Update

The overall delta of the portfolio is around -140 as of 14/12/2010, with 35 days to expiration. The portfolio is still in good shape and we expect Theta decay to set in as we move into the next option cycle next week. We design our portfolio for income to be hands of management and only adjust if our Delta's move out of our comfort levels.

Portfolio Update

Update of profit and loss for 100K portfolio, please divide P/L by 5 for 10k portfolio

This is the profit and loss as of today 10/11/2010 at 12:00pm , this portfolio was created on Thursday 10/07/2010. So far the portfolio is up $750 (4 days) for 100K portfolio with $50k margin net $5,500 net premium ($50k - $5.5k =$44.5Knet margin) taken in and up $150 for 10k portfolio with $10k ($10k-$1.1k=$8.9 net margin) margin and $1,100 net premium taken in.

The portfolio has positive Theta of $195 for 100K and Theta of $47 for 10K.

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Signup and leave you email information if you want to receive live updates to my income trades. Most of these trades have an 80% probability of working out. If you want to receive live uodates when we update the portfolio then sign in so we can keep you current on our daily portfolio values and adjustments if it becomes necessary.

Also we will appreciate anny comments about making this service better for you. Welcome and lets make consistent monthly income

Income Trade Non directional Iron Condor for November expiration

This is a non directional income trade. We only adjust if our delta goes to 20. If you put up a similar trade please follow our blog closely incase we need to adjsut it. This trades returns 12.3% in a little over a month.

Instrument Russell 2000:RUT
20K Portfolio Creadit Spread
Iron Condor	Side	Quantity	Symbol	Exp	Strike	Type	Net Credit	Total received
	Sell	10	RUT	Nov	770	Call	$          1.10	$    1,100.00
	Buy	10	RUT	Nov	780	Call
	Sell	10	RUT	Nov	560	Put
	Buy	10	RUT	Nov	550	Put
Margin Required	$    8,900.00	Per 10 contracts
Net Credit	$    1,100.00
Return	12.360%
For $100k portfolios
Iron Condor	Side	Quantity	Symbol	Exp	Strike	Type	Net Credit	Total Received
	Sell	50	RUT	Nov	770	Call	$          1.10	$    5,500.00
	Buy	50	RUT	Nov	780	Call
	Sell	50	RUT	Nov	560	Put
	Buy	50	RUT	Nov	550	Put
Margin	$  44,500.00
Net Credit	$    5,500.00
Return	12.3596%

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