Alright, so in this video, I’m going to share with you a strategy called the “Unlimited Income” option trading strategy. This strategy allows us to extract as much Extrinsic Value as possible by taking advantage of Theta Decay. The goal is to continuously generate income from the market by having positions in the market 80-90% of the time. We’ll be using three option trading strategies: iron condor, bull put spread, and bear call spread. The video provides a step-by-step guide on how to implement the strategy, including setting up the chart and using the stochastic oscillator for trade signals. It’s a great strategy for premium sellers looking for consistent income generation. So, download the Options Income Blueprint for free and let’s dive into the details!
Overview of the ‘Unlimited Income’ Option Trading Strategy
Introduction to the strategy
The “Unlimited Income” option trading strategy is a method of extracting as much extrinsic value as possible by taking advantage of Theta Decay. The goal of the strategy is to continuously generate income from the markets by keeping positions in the market 80-90% of the time. This strategy is suitable for premium sellers looking for consistent income generation.
Focus on extracting Extrinsic Value
The strategy focuses on extracting extrinsic value from the market by utilizing Theta Decay. Extrinsic value refers to the portion of an option’s price that is influenced by factors such as time and implied volatility. By consistently extracting this extrinsic value, traders can generate a consistent income.
Choice of Index ETFs
Index ETFs are recommended as the product of choice for this strategy. This is because index ETFs minimize volatility and unsystematic risks compared to individual stocks. Index ETFs are not as affected by earnings releases or company-specific news, reducing the risk of significant price movements that could impact premium sellers’ strategies.
Three option trading strategies used
The “Unlimited Income” strategy employs three option trading strategies: the iron condor, the bull put spread, and the bear call spread. These strategies are designed to take advantage of different market conditions and provide a market-neutral approach to generate income from options.
Step-by-Step Guide to Implementing the Strategy
Setting up the chart
To implement the strategy, it is essential to set up the chart with the relevant indicators and parameters. Traders can use charting platforms that provide tools to analyze market conditions and monitor trade signals effectively.
Using the stochastic oscillator for trade signals
The stochastic oscillator is used to identify overbought and oversold market conditions. Traders look for opportunities to initiate trades when the stochastic oscillator is in the neutral range (around 40 to 60). This indicates a more balanced market condition suitable for implementing the strategy.
Initiating the strategy at a neutral reading
The strategy is initiated when the market reaches a neutral reading on the stochastic oscillator. This is the ideal time to start considering entering trades using the option strategies mentioned earlier.
Placing an iron condor position
The iron condor strategy is implemented by placing options trades with short strikes above and below the previous swing highs. By choosing the appropriate options contracts, traders can limit their risk while still benefiting from time decay.
Monitoring and managing iron condor position
Once the iron condor position is established, it is important to continuously monitor the market and manage the position accordingly. Traders must closely track any movements in the market and adjust their positions if necessary to avoid breaching the established strike prices.
Identifying opportunities for new iron condor positions
If the market breaches the strike prices of the iron condor position, new opportunities may arise. Traders can look for potential bearish trades by considering the bear call spread or bullish trades by considering the bull put spread. The stochastic oscillator can help identify the optimal timing for entering these trades.
Implementing a bull put spread trade
If the market breaches the put side of the iron condor, a bull put spread can be implemented. This strategy involves selling a put option while simultaneously buying a farther-out-of-the-money put option to limit risk. Traders should wait for the stochastic oscillator to indicate oversold conditions before initiating this trade.
Finding suitable strike prices for the bull put spread
When implementing the bull put spread, it is crucial to find suitable strike prices. The short strike should be below the previous swing low, providing a buffer in case the market continues to drop. By carefully selecting the strike prices, traders can optimize their risk-to-reward ratio.
Subscribing to Options with Davis for more videos
To learn more about the “Unlimited Income” option trading strategy and other trading techniques, viewers can subscribe to Options with Davis. Subscription allows access to additional videos and resources to enhance trading knowledge and skills.
Showing current position on trading platform
The video concludes by showing the current position on the trading platform. This allows viewers to see how the strategy has been implemented and provides a visual representation of the trades discussed in the video.
Simulated Trading and Preferred Expiration Date
Consideration of expiration date
When trading options, traders must consider the expiration date of the contracts. In this strategy, a 39-day expiration date is mentioned as a preferred option. Traders should choose an expiration date that aligns with their trading goals and risk tolerance.
Analysis of call vertical spread
The video analyzes a call vertical spread with a strike price below 162.5. By assessing the market conditions and potential price movements, traders can determine whether a call vertical spread is suitable for their trading strategy.
Exploring different spreads and credits
Traders can explore different spreads and credit amounts when implementing the strategy. This involves analyzing various options contracts and selecting the ones that offer the desired risk-reward ratio.
Trade management strategies
Managing trades is an essential aspect of successful options trading. The video suggests taking profits at 50% and cutting losses at 21 days. These trade management strategies help traders maintain disciplined and consistent approaches to managing their positions.
Managing multiple trades simultaneously
The video mentions managing multiple trades simultaneously, such as having an iron condor and a bull put spread position. This requires careful attention to each position and monitoring any potential adjustments that may be needed.
Rules for selling another spread
If the market breaches the short strike of a position, the video suggests considering selling another spread. This rule allows traders to adapt to changing market conditions and potentially mitigate losses or capture additional profits.
Conclusion
The “Unlimited Income” option trading strategy offers a systematic approach to generate consistent income from the options market. By focusing on extracting extrinsic value using Theta Decay, traders can aim to have positions in the market 80-90% of the time. The strategy utilizes index ETFs to minimize volatility and unsystematic risks. Through the use of iron condors, bull put spreads, and bear call spreads, traders can capitalize on various market conditions. Successful implementation of the strategy requires careful analysis, trade management, and adherence to risk management principles.