One of the biggest tests of self-control is the ability to trade options on the stock market calmly. It can be an emotional roller coaster because the stock market can be irrational, especially if you need it to go in a particular direction.
I won the lottery three times this month while trading options, once for $2,000, $1,000, and $1,500. Each time, the amount of money I risked was roughly $7,500.
While this may not seem like a lot of money to you, it’s a ton of money for me. If I made these returns every week, the annual return would be upwards of 1,000%.
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But let’s rewind for a second to see how I got to this point and how I am learning to manage my fear and greed to continue to win the lottery with options.
Trading options for passive income. There are many full-time options traders, but I don’t see many part-time retail investors who trade them.
Options can be a great source of passive income if you understand how to leverage them in your favor. Here are a few rules I developed over the last six months.
- Never depend on options money. Money from options trading should always be optional, meaning you can survive and thrive without this income stream.
- Start small. An excellent way to start with options is by selling covered calls and cash-secured puts. You can’t get into too much trouble with these protected assets.
- Don’t set a minimum winning amount. Over time, you will start to make poor choices if you select a minimum amount you want to earn over a month.
- Set it and forget it. Don’t stare at your options screen all day; this will contribute to your fear and greed. Set a good pair of parameters and let the market do its thing.
- Find your path. There are many ways to trade options, so you must find what works for you.
- Have fun. If you are losing big, remember that you can win that big over the same cycle. The market only goes two ways.
My setup. My wife and I are fully retired now. I am 42, and she is 39. We can live comfortably on my military pension check.
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However, I don’t believe in living on a fixed income (a budget is better), so we bring in many other forms of passive income. Some of these include dividends, rental income, and book royalties.
Every month, without trading options, we are living our dream. We know how to follow and execute our hardcore budget.
We receive $1,500/month from dividends, $650 from rent, and $200 from books. We can use this money for anything we want, including going to the movies, eating out, or shopping.
The joy of passive income is knowing that it will continue to repeatedly show up in your accounts, even though you are not actively working for it.
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Enter options trading. If everything is good for us financially, why do I trade options? Trading options adds “pop” and “wow” to our lives.
We used to have roommates for close to five years. Getting that monthly rental income was exciting, but we had to contend with the roommates themselves.
We make more money trading options than having roommates—without hosting the tenants. Plus, there is always a hidden chance to win the lotto when trading options.
We use options money to travel the world, be generous to family and friends, and invest even more into dividend stocks.
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The perfect setup. Again, we don’t need money from options at all, but we love it. The minute you need cash from options, you’ll start to make poor decisions based on fear and greed.
After six months of selling cash-secured puts and covered calls, I realized I preferred to trade long strangles.
With a long strangle, you purchase one call option above the current stock price and buy one put option below the strike price.
For example, if the current stock price is $15, I would purchase a call for $15.50 and a put for $14.50. Theoretically, I can win in any direction.
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The trick to understanding long strangles is that you cannot lose more than you purchase. However, you can win multiple times more than your purchase price.
Let’s say you purchased $2,000 worth of puts and $2,000 worth of calls. The stock price rises fast, and your calls gain in value.
You may see your calls worth $5,000 and your puts worth $300. You invested $4,000, but now the pair is worth $5,300. This is when you sell.
With this backdrop, let’s consider how we won $1,500 yesterday. Keep in mind, I would have been just as excited to win $300 or $400 with the trade. Nothing is better than going into the weekend with an extra $300 or $400 to spend freely (except winning $1,500).
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Passive income for the win. For context, my wife and I are visiting family in Istanbul, Turkey. We will take the family to the Marriott on the other side of town and do some dining and swimming.
As you can see, I invested $7,684 and received $9,288 after six business days. That’s a profit of $1,604. I had to pay a margin fee along the way, so my yield was around $1,550.
We are now going into the weekend with an extra $1,550 to spend on our hotel trip in Istanbul. How exciting is that?
All this is because I am learning to play the long game of options trading. To make a $1,550 return on $7,684 is quite impressive.
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How about your life? With that backdrop, how can options help you live your dream life? If you work a 9-5, wouldn’t it be nice to have some extra income to do nice things?
Trading options may seem like a challenging risk proposition, but isn’t it riskier not to take a chance? Do you see yourself earning an extra $1,500 in one month at your job?
You have to position options trading in your life so that it makes sense. You don’t have to bet $7,000, how about $700.
You may only make $150 (instead of $1,500), but that’s a free $150. How can $150 change your weekend?
The Magic of Dollar-Cost Averaging
Going to the movies and Buffalo Wild Wings with my sons costs about $150 each time. It’s nice to pay these expenses with my Options Trading Debit Card.
Conclusion. Options trading is a lottery you can manage to great success, but you must refine your metrics for winning.
I am ecstatic if I win $200 in time for the weekend. That’s money I can spend with my family and friends. My Dividend Debit Card used to be my favorite way to spend money, but my Options Trading Debit Card took it over.
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There is simply no better feeling than spending money you created from scratch. I get a chill every time I pull out my Options Trading Debit Card, especially in Turkey.
What is your risk profile? Are you trying to get ahead by working more hours, double shifts, or on holidays? How’s that working out for you?
My wife and I both started with $20,000 in our options account; now, I am at $23,000, and she is at $22,000.
However, we have each spent over $4,000 out of our accounts over the last five months. So, we are spending money without remorse, but our account balance keeps rising. That’s my definition of winning the lottery. Good Luck!
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