The “Unlimited Income” Options Strategy

Do you want an Options strategy that can help you generate a consistent income?

Then you want to trade what I call the “Unlimited Income” Options strategy.

This strategy is designed to extract extrinsic value from the markets every single day.

And you will constantly have a position in the market that is collecting Theta on a daily basis.

So what’s the “Unlimited Income” Options strategy and how do you trade it?

The “Unlimited Income” Options Strategy

The objective of this strategy is to continuously extract extrinsic value from the market through Theta (aka time decay).

That means we will only be using premium-selling strategies as opposed to premium-buying strategies.

And ideally, we want to have at least one position at any time to constantly be collecting Theta for us.

So for this strategy, we will only use the Index ETFs.

That’s because Index ETFs do not have earnings and do not have individual stock risk.

While the stocks in the Index ETFs can have earnings, it will not have a great impact on the Index ETF as a whole because it comprises many stocks.

And no single stock news can make the Index ETFs have a big move.

For example, if GOOGL or META were to suddenly release news to make the stock gap down, QQQ itself wouldn’t have that big of an impact.

And this is important because when we are using premium-selling strategies, we generally do not want the market to move that much.

So for this strategy, the perfect vehicle would be using broad-based Index ETFs (i.e. SPY, QQQ, IWM, etc.).

Next, the “Unlimited Income” Options strategy is the combination of three Option strategies:

• Iron Condor
• Bull Put Spread (aka Put Credit Spread)
• Bear Call Spread (aka Call Credit Spread)

Let’s break down each of the strategies so you know exactly how each of them works.

The Iron Condor

The Iron Condor is a neutral Option trading strategy that seeks to profit if the market stays in a given range.

The image above shows the risk profile of the Iron Condor.

As you can see, the Iron Condor has a large profit zone in the middle.

So as long as the market stays inside of this profit zone by expiration, the Iron Condor will be profitable.

If you do not have any directional bias toward the market, or you have no idea how to pick a direction to trade, then the Iron Condor is the perfect strategy for you.

Just put on the Iron Condor, and let Theta work for you over time.

The “Unlimited Income” Options strategy will be initiated using the Iron Condor.

The Bull Put Spread

The Bull Put Spread (aka Put Credit Spread) is a neutral to bullish strategy.

From the diagram above, you can see that the Bull Put Spread consists of two single Options:

• A Short Put (usually out-of-the-money (OTM)).
• A Long Put (further OTM).

If you think the market is going up, put on this strategy.

Even if you’re wrong on the direction and the market either stays at around the same price or goes down a little, you can still be profitable on the trade.

It’s a “forgiving” strategy because you can be wrong in choosing the direction, but still end up being profitable.

The Bear Call Spread

The Bear Call Spread (aka Call Credit Spread) is the counterpart of the Bull Put Spread.

It is a neutral to bearish strategy.

In the diagram above, you can see that the Bear Call Spread consists of two single Options:

• A Short Call (usually out-of-the-money (OTM)).
• A Long Call (further OTM).

If you think the market is going down, put on this strategy.

And similar to the Bull Put Spread, it’s also a “forgiving” strategy.

You can be wrong about the market going down and still be profitable if the market stays around the same price or goes up a little.

These three Option strategies combined and used together in the right way become what I call the “Unlimited Income” Options Strategy.

And if you noticed, these three strategies are defined-risk strategies.

That means you can’t lose more than the risk you’ve defined for each of the strategies.

Hence, it’s a safe strategy even for beginners to use and is suitable if you have a small account.

How To Trade The “Unlimited Income” Options Strategy

As mentioned above, we kickstart the strategy by using the Iron Condor.

But we don’t want to enter the Iron Condor randomly.

Instead, we want to only put on the Iron Condor when the market is in a “neutral” condition.

At any given time, the market will be in either one of the following conditions:

• Overbought – The market has gone up quite a bit and is likelier to go down than continue going up at this point.
• Oversold – The market has sold off quite a bit and is likelier to retrace back up than continue going down at this point.
• Neutral – The market is neither overbought nor oversold.

So how do you know whether the market is overbought, oversold, or in a neutral condition?

By using the indicator called the Stochastic Oscillator:

When the blue line is above the top purple line, the market is considered overbought.

When the blue line is below the bottom purple line, the market is considered oversold.

And when the blue line is in-between both purple lines, the market is considered neutral.

So when the Stochastic Oscillator is showing that the market is in a neutral condition, this is when we see an Iron Condor.

Once the Iron Condor trade has been initiated, we want to exit the trade at the 21 DTE mark regardless if it’s a win or loss.

That’s because studies have shown that if you exit at 21 DTE, you will get better results compared to holding it till expiration.

The table above shows a study done by the folks at TastyTrade comparing the results of the Iron Condor being held to expiration versus exiting at 21 DTE.

When exiting at 21 DTE, the win rate is higher and the daily P&L is higher as well.

The graph above shows the cumulative performance of the Iron Condor exited at 21 DTE compared to holding till expiration.

As you can see, exiting at 21 DTE has a superior performance compared to holding till expiration.

Furthermore, you greatly reduce early assignment risk.

That’s because when there’s still 21 DTE in any In-The-Money (ITM) Options, there’s still extrinsic value so the chances of it being assigned early is low.

However, if you were to hold any ITM Options close to expiration, there’s a good chance that they will be assigned early as the extrinsic value will get lesser and lesser as it reaches expiration.

When The Iron Condor Is Breached

So what do you do when the Iron Condor is breached on either side of the short strikes?

Firstly, you can choose to manage the Iron Condor.

Secondly, we will enter into either a Bull Put Spread or a Bear Call Spread trade.

If the Short Put strike is breached, then we will enter into a Bull Put Spread trade.

That’s because, at this point, the market is very likely oversold, and is an opportune time to get into a bullish trade.

And if the Short Call strike is breached, we will enter into a Bear Call Spread trade.

At that point, the market is likely overbought and is an opportune time to get into a bearish trade.

Similarly, with both Credit Spreads, we want to exit at 21 DTE.

That’s because the results are better as well when exiting at 21 DTE compared to holding till expiration.

And you also reduce the chances of getting early assigned on any ITM Options.

Once the Iron Condor trade has been exited at 21 DTE, we reset the strategy again and wait till the market is in a neutral condition to put on the Iron Condor again.