Options are sometimes misunderstood, which comes from a lack of familiarity. This article will provide some clarity and bust a few myths hopefully.
Our graduates understand the reality well, currently earning 1-3% per month with our conservative strategies.
They are not speculating but following a disciplined, repeatable process built on probability and structure.
In the US, options are pretty mainstream with a massive community of millions of ordinary investors. We are way behind in Europe but things are changing.
What is an option?
Options have existed for centuries. They were invented to reduce risk. Major financial institutions use them widely today – mainly to manage risk and generate income.
An option is simply a contract. It gives you the right to buy or sell a stock or ETF at a specific price (strike price), on or before a specific date.
The buyer of an option pays a premium. The seller of an option receives that premium as income.
Our own strategies focus primarily on being the seller. We collect the income and set the terms.
The beauty of options is they can be simple. But you can also do less simple strategies, depending on how involved you want to get.
Below, I provide a range of 5 different styles and outcomes.
The best thing: depending on your goal, you can achieve outcomes to suit your own objectives …
1. Selling options to earn income
The most straightforward. You sell an option contract and collect income upfront which lands in your account immediately. The stock or ETF doesn’t need to go up.
This is where the 1-3% per month comes from. You get paid to agree to buy your favoured stock or ETF in the future, at a price you agreed to already.
If you already own shares, you can rent them out to earn monthly income. As i explain in my video.
A Covered Call lets you sell the right for someone to buy your shares at a higher price Vs today. In return, you collect a monthly premium whatever happens …
Real example: say you own 100 shares of Apple (AAPL), currently at $300. AAPL has seen a good run and if that pauses, you can earn income in the meantime.
So you can sell a call option with a strike price of $310, expiring in 1 month …
The premium collected will be $5.10 per share, or $510 total income (on a $30k holding). That equates to 1.7% for the month, for shares already sitting in your portfolio.
(as i was writing this, the option price moved up from 1.6% to 1.7%, hence the difference vs the % in the image)
If Apple pauses and stays below $310 within the month, the option expires and you keep the premium. Next month you rinse & repeat, doing it again.
If Apple rises above $310 in the month, your shares get called away at $310. You make the $10 gain + the $5.10 premium. The ‘downside’ here is you’d miss gains above $310. More on that below.
3. Owning at a discount and still getting paid
A cash-secured put means you agree to buy a stock or ETF that you’d buy anyway, at a lower price than it trades today. In return for that agreement, you collect a premium immediately.
Real example: the Nasdaq ETF is trading at $710. You sell a 1-month put and agree a strike price of $690. You will collect around $11 per share. That’s $1100 in monthly income, equating to 1.6% income for the month.
Two possible outcomes:
1. The Nasdaq ETF stays above $710. Nothing else happens, you keep the premium and do it again next month. Rinse & repeat.
2. The ETF drops to $690 or below. You now get to buy it at $690 (the price you already decided you were happy with)
Either way: you got paid the $1100 income whichever way the ETF goes. And you like it so would have bought it anyway.
The best part: you’re not limited to stocks here. You can do exactly this on Gold ETFs, Silver, Govt Bonds, Property REITs, Crypto ETFs … anything with a liquid options market.
You pick the underlying you understand and resonate with.
4. Limiting the Downside: Bull Put Spreads
This strategy has downside protection, like a stop-loss. And you get paid monthly income (slightly less because now you’re buying some insurance)
A bull put spread combines two options. You sell a put at a higher strike price and simultaneously buy a put at a lower strike price.
The lower strike price sets your stop-loss. So you have a “built-in safety margin” in place. You know your worst-case before you place the trade.
5. Profit when markets decline: Bear Call Spreads
This strategy makes money when the market goes down or sideways.
Bear call spreads are created by selling a call at one strike and buying a call at another. You collect a net premium upfront.
The 1 thing common to all: YOU always choose the underlying.
That’s critical. You pick the stock, ETF, precious metal, crypto, or commodity that you understand and follow. Regardless of the strategy.
Gold bugs can trade gold options. If you like dividend stocks you run covered calls on existing holdings. Those who prefer broad diversification can trade options on index ETFs.
In Summary, Different Options Strategies can …
Generate monthly income
Rent out your existing holdings for monthly income
Get you a discount on shares you like anyway
Protect your downside
Profit when markets decline
And you can own a properly diversified portfolio across stocks, gold, bonds, property or whatever you’re into.
The Investment Accelerator has transformed how thousands of people now invest. Creating diversified passive portfolios for Growth and Recurring Income.
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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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