In our last post that you can find here: Weeklys – How To Have Your Volatility Cake and Eat It Too – we showed some trading risk graph examples from an option income trade that we have been trading for years now with excellent results.
This is an option trade that can both generate consistent returns during lower volatility trading months – as well as provide solid ‘hands free’ protection from wild market moves during more volatile trading times. In fact, it can produce it’s BEST and HIGHEST option trading returns during huge, wildly swinging months and even market crashes. It’s the type of option trade that you can place every month – and during those few months were the market goes crazy and crashes – this trade can perform extremely well.
It’s also an option trade that can require very little time having to actually monitor the trade. Due to the way that the position is constructed through the specific combination of calls and puts – it is a trade that you could not even look at for days – and have complete confidence that the position will be okay.
Normally we option traders want to put on our typical option income trades (like iron condors, butterfly spreads, calendars spreads, double calendar spreads, diagonals, and ect) when the overall market is a bit more calm and not swinging around violently. The problem that comes up is when we hit a longer period of more volatile trading times like we’ve seen over the last few years – or even worse – when sudden ‘flash crashes’ occur causing huge sudden drops out of the blue that can potentially totally wipe out our ‘market range bound’ income trades.
Well this is trade that can be the perfect ‘tool’ to use in both / either scenario – as it can perform and accomplish out trading goals in either type of market situation.
It’s also a trade that can be be perfect for newbie option traders – who haven’t quite been able to wrap their heads around everything that is involved with trading options – like the option greeks, delta, theta, vega – calls and puts, etc. This trade has solid built in protection. It’s like an armored truck. While of course there is risk in the trade – at least initially – it’s an option trade that when set up and managed correctly it could be quite difficult to get badly hurt.
For example, if I had to set up dear old Great Grandma Sue in an option trade (and she knew very little or ‘nothing at all’ about options or option trading) this would be a perfect trade that I’d feel comfortable putting her in – knowing that the odds were WAY stacked in her favor that she’d make a great monthly return without having to do much of anything – and in the rare circumstances where it didn’t make her money and the trade wound up losing – the loss she would experience would be tiny in comparison to what would normally happen with a more ‘typical’ option income trade like a straight iron condor, credit spread, calendar, etc.
And even better – if a huge market crash were to occur – Great Grandma Sue’s trading account would explode in value – making her much more than she could ever hope to make with one of those more ‘normal, typical’ option income trades. And she’d make this money without having to be glued to her computer monitor and making all sorts of fancy trading maneuvers and adjustments. Other than closing the trade out and banking her huge windfall profit – she likely wouldn’t have to do anything else at all.
Keep an eye out for our upcoming posts where we will dive into these trades much deeper – and be sure to join our FREE option income trading newsletter for updates on these lessons as well as more info on how to learn more about this type of option trading.
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