At this point in my life, I can’t risk large losses.
I have three young kids. These kids need to go to college one day, so they can move out.
That means I have three rounds of college tuition (and a very late midlife crisis) ahead of me.
If I want to fund those, I can’t rely on risky strategies that masquerade as “safe.” I’ve done that before — and I paid for it, with my hard-earned money.
After the 2020 pandemic blew up my put-selling strategy, I realized I needed a better way to generate income.
Finally, after months of research, I have a consistent income strategy that lets me decide how much I’m willing to risk.
I just put this new strategy to the test. And the results prove you don’t have to settle for small returns in exchange for low risk…
90% in 1 MONTH?
Instead of selling puts, I use spread trades for income.
On Wednesday, I shared an example of a spread trade on Dollar Tree, Inc. (DLTR).
A spread involves trading at least two contracts at the same time. When I sell a put for income, I also buy a different put to limit risk. These trades fix the problem with a traditional put-selling strategy.
I still generate income, but my risk is limited. With each spread trade, I can calculate how much risk is on the table — right down to the dollar.
Spread trades also require less capital than traditional put selling. At the most, you’ll need $500 to place a trade. Usually, that number is closer to $250. Sometimes it’s even as low as $100.
Because they require low amounts of capital, spread trades generate smaller amounts of income. Typically, you’ll earn less than $50 per contract. But you can overcome this by placing trades more often.
In fact, if you play your cards right, you could make a 90% return on your money in just one month…
See, I ran a beta test of this strategy last month.
At True Options Masters, we use real money to test our strategies. For my test, I sent alerts to my colleagues, who placed trades with their own money. We used their fill prices to track returns.
For the test, no trade required more than $500 in capital. But let’s add a margin of safety, and start with $1,000.
Over the course of the month, our trades generated $321 in income. On a $1,000 account, that’s a 32.1% return.
Now, considering buy-and-holders are happy with 10% a year, that’s impressive enough already.
But risk never exceeded $256 on any trade. With $1,000, more aggressive traders could trade three positions for each signal…
Boosting the return on that $1,000 to over 90% in one month.
I’m glad my strategy blew up in 2020. It forced me to rethink everything I knew. Well, everything I thought I knew.
I realized put selling is passive. All you can do is sell and hope.
But safety requires an active strategy. With spreads, I sell the put, then define the risk. It can be as small as I’m comfortable with.
And, as I said earlier, my risk tolerance is low these days.
I know that’s true for many of us right now. So, if you want a strategy that provides you with consistent income and lets you decide how much risk is on the table, consider giving spreads a try.
Senior Analyst, True Options Masters