The Joys of Income Trading!

What is income Trading? I define Income Trading as trading that utilizes strategies that have positive theta.

For example, in an Iron Condor Trade, you sell an OTM call credit spread and an OTM put credit Spread.

It is a positive theta trade because you are selling more extrinsic value in your short options than you are buying with your long options.

How Do You Get Joy from Your Income Trading?

I don’t have to try and pick market direction every day or week. I rely on repeatable trades that I can do regardless of market direction that rely on risk management and not reading tea leafs!

An example of what I mean can be illustrated with an Iron Condor Strategy this week.

For illustration purposes, I will assume I put on a delta neutral Iron Condor on Wednesday afternoon, right before 2 big up days Thursday and Friday.

The trade would be in the June expiration, put on May 6 at end of day with SPX at $2080. The trade would be to sell one 2175 call and buy one 2185 call.

In the puts, buy one 1955 put and sell one 1965 put. This is an Iron Condor trade that was trading at $2.35 credit on Wednesday afternoon.

SPX

Thursday and Friday, the SPX climbed from the 2080 level to the 2116 level, more than 36 points in 2 days. The Iron Condor is now trading at $2.55 credit, we would be down about $20 or 2%.

When we put on delta neutral, positive theta trades, if we have a good risk management plan, we don’t get killed every time an index moves 1  1/2 %!

This position is nearing an adjustment soon, but the big move up didn’t hurt our Iron Condor much, it can be a very resilient trade. For more information, be sure to visit our one-on-one options mentoring page.