Monthly Income + Downside Protection: Why the pros love investing this way …
There’s a false and misunderstood belief that Options are speculative.
In reality, they are a safer way to invest in your favoured stocks or ETFs. And they provide an income stream.
In fact, Options were invented to reduce risk. Which is why the Pros (including during my time at JPMorgan) love them.
You get downside protection + reliable income: a combination most investors don’t realize is possible.
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How?
Imagine buying your favoured stock (or ETF or Fund) in the usual way …
If it rises 5%, you gain 5%
If it falls 5%, your value declines by 5%
With Options you can protect this decline by selecting a ‘Strike Price’ at your desired level, eg 5% lower.
This gives downside protection and safety margin.
Safer Entry intoEmerging Markets …
Let’s illustrate this with a real example: an ETF that tracks Emerging Markets (EM).
You can see below it has performed well. If we wanted to own this anyway, how could we do so whilst protecting against a 5% decline after purchase?
The answer is via Options ….
Downside Protection with Options …
With Options you have a safety margin. This is how it works …
The Emerging Markets ETF has a current price of 49.91. To create a safety margin of 5% you’d choose an Option with a ‘Strike Price’ of 47.50 (approx 5% below today’s level).
That means you get to purchase it at 47.50 (instead of 49.91) if it dropped to that level. And if it doesn’t drop to that level, you don’t buy it.
BUT … you’ll get paid monthly income either way, for taking on the obligation to buy.
Typical income levels are 1-3% per month – depending on the stock/ETF and the strike price you select.
Either way, my mentees learn a powerful easy-to-follow process for either objective.
Any Risks ?
You might be wondering where’s the catch. There are two ‘risks’ Vs buying in the usual way:
Risk 1: In our example we agreed to purchase the ETF at our strike price of 47.50 (in order to receive the income).
But if it declines further, we start incurring a loss below 47.50 – our safety margin is limited to the Strike Price. Which is safer than the usual way which has no safety margin.
[We can choose a lower strike price which would earn lower income. Or select a higher strike price that earns higher income].
As we do Options on stocks we’d be happy to own anyway, the absolute worstscenario is having to buy our favoured stocks at a price of our choosing (lower than today’s price) – and we get paid an income for agreeing to this.
Risk 2: We only get to buy this ETF IF it drops to our strike price (47.50). If instead, it rises significantly, we lose out on the upside.
Remember, either way: we’ll get paid the monthly income anyway, regardless of either scenario.
My Personal Options Strategy (and what I teach) …
Options are only risky when used for speculation or excessive leverage.
That’s not what I do, nor teach. My approach uses:
Built-in safety margins
Probabilities tilted in your favour
Predictable income of 1–3% per month
Our approach isn’t gambling – it’s a disciplined, easy-to-follow strategy that makes investing safer, more predictable, and more rewarding.
Time in the Markets always beats timing the markets
Stay Diversified
Minimise those leakages: Fees, Inflation, and Taxes
Financial Markets are a great source of recurring income
ETFs, Balanced Funds and Options achieve all the above
Being educated helps you outperform 99% of the population
… to ensure your investments work for YOUR financial freedom (not someone else’s)
And …
For more guidance, our Investment Academy will help you implement all of this in a step-by-step way.
Thousands of people have learnt how to diversify and pound-cost-average into low-cost, set-and-forget ETFs & Funds for inflation-beating growth. And Options to create recurring income.
– Don’t take the above as advice as it may not apply to you personally
– Your Capital is at Risk
– You may not be covered by the FSCS
– Anything mentioned in a podcast or in a previous article was valid at that time and may not continue to be now
Stockmarket Investment Academy … Step-by-Step Training to Diversify your Wealth and Create Passive Compounding in the Markets (click image below for details …)
About Me
Manish Kataria is a Fund Manager. A CFA-qualified professional with 18 years’ experience in investment management and UK property. He has managed investment portfolios for JPMorgan and other blue chip investment houses. Asset classes managed include Equities, ETFs, Bonds, Funds and Options. Within property, he invests in and owns a range of assets including developments, HMOs, BTLs and serviced accommodation. InvestLikeAPro was set up so anyone can invest like a pro.
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