HOW TO GENERATE

INCOME USING
OPTIONS IN YOUR
INVESTMENT PORTFOLIO
WWW.OPTIONSPLAY.SE
 TABLE OF CONTENTS
02 I. INTRODUCTION
02 How to Generate Income Using Options In Your Investment Portfolio
03 II. INTRODUCTION TO OPTIONS TRADING
03 What are Options Contracts?
05 Key Terms and Concepts in Options Trading
06 III. OPTIONS AS AN INCOME GENERATION TOOL
08 Comparison with Dividend Stocks
08 Comparison with Bonds

09 IV. BASIC OPTIONS STRATEGIES FOR INCOME

(PART 1 - SIMPLE STRATEGIES)

09 Selling Options

10 Covered Calls

11 Cash-Secured Puts

13 V. ADVANCED OPTIONS STRATEGIES FOR INCOME

(PART 2 – COMPLEX STRATEGIES)

13 Straddles & Strangles

15 Credit Spreads

17 Iron Condors

18 VI. MANAGING RISK IN OPTIONS TRADING

18 Importance of Risk Management
19 Key Strategies for Managing Risk
20 VII. INDUSTRY BEST PRACTICES FOR PROFITABILITY
21 VIII. CONCLUSION
21 Summary of key points and strategies
I. INTRODUCTION
HOW TO GENERATE INCOME USING OPTIONS IN YOUR
INVESTMENT PORTFOLIO
In today’s fast-paced and dynamic financial landscape, achieving financial security
remains a priority for most individuals. As one navigates through the ever-changing
world of investments, embracing innovative strategies that unlock new opportunities
for income generation and wealth preservation is essential. Our goal is to introduce
you to one such powerful financial instrument – options. See how you can get started
with generating income using options in your investment portfolio.

Unlike traditional investments, options trading offers a flexible and dynamic

approach to generating income, even in volatile or bearish market conditions. By
leveraging various options strategies, investors can potentially generate steady
income streams and reduce volatility in an investment portfolio. In this paper, we will
explore the basics of options trading for income generation, popular strategies for
generating income, risk management techniques, and industry best practices to
help you maximize returns while minimizing their risks.

The benefits of incorporating options income strategies into your investment portfolio
are diverse. Not only do they provide a means of diversifying your income streams,
but they also empower you with greater control over risk management, allowing you
to tailor your exposure to market fluctuations. In doing so, you can maintain financial
security and peace of mind, even as the economic landscape shifts around you.

The most common options trading strategies to generate income are covered calls
and cash-secured puts. A covered call involves selling a call option on an underlying
asset that you own, and the premium collected from the sale of the call option provides
income. Cash-secured puts involve selling a put option on an underlying asset which
can allow for purchasing of that asset for a discount from the premium collected of
the put sale.

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For investors who have more experience with options, some advanced strategies
include Credit spreads, which provide an income stream similar to a cash secured
put with less risk and capital required. These more complex options strategies can
offer even more compelling risk-reward profiles for investors.

POPULAR INCOME OPTIONS STRATEGIES

BEGINNER EXPERIENCED
STRADDLES
COVERED CALLS
STRANGLES

CREDIT SPREADS
CASH SECURED PUTS
IRON CONDORS

In summary, generating income quickly becomes necessary in the current market

environment. Options trading offers an attractive alternative to traditional investments
for developing a consistent income stream that is not solely dependent on capital
appreciation or market direction. Incorporating options trading into your investment
portfolio can help increase income while managing risk.

II. INTRODUCTION TO OPTIONS TRADING

WHAT ARE OPTIONS CONTRACTS?
As an investor, it is vital to understand the basics of how options contracts work. An
option is a financial contract that gives the holder the right, but not the obligation, to buy
or sell an underlying asset at a specified price, known as the strike price, within a specific
time frame. The underlying asset can be a stock, an index, a commodity, or a currency.

ANATOMY OF AN OPTIONS CONTRACT

What quantity are What product are What price are What timeframe are
we agreeing on? we agreeing on? we agreeing on? we agreeing on?

Contract Amount Underlying Security Strike Price Expiration Date

Stock, ETF, Index,

1 Contract = 100 Shares Priced per Share Normally on Fridays
Currency, Commodity

1 ABC 500 SEK Dec 22

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The strike price is an important element of options contracts. The strike price is the price
at which the option holder can buy or sell the underlying asset. For example, if an investor
purchases a call option with a strike price of 500 SEK and the underlying asset is currently
trading at 550 SEK, the investor has the right to buy the underlying asset at the strike price of
500 SEK.

Buying a call option gives the holder the right, but not the obligation, to buy the underlying
asset at the strike price on or before the expiration date. Buying a put option gives the holder
the right, but not the obligation, to sell the underlying asset at the strike price on or before the
expiration date.

Selling an options contract, otherwise known as writing an options contract involves

taking on an obligation to either buy or sell the underlying asset at the strike price if
the holder of the option chooses to exercise their right. Selling a call option obligates
the seller to sell the underlying asset at the strike price if the holder exercises their
right, while selling a put option obligates the seller to buy the underlying asset at the
strike price if the holder exercises their right.

FUNDAMENTAL OPTIONS STRATEGIES

(Buyer) Long Calls (Seller) Short Puts

Purchased for a premium Sold for a premium
Own right to buy Obligated to buy

CALLS PUTS

(Seller) Short Calls (Buyer) Long Puts

Sold for a premium Purchased for a premium
Obligated to sell Own right to sell

One way to better understand buying and selling options, is to think of buyers as betting
on a strong directional view of the underlying asset. While sellers of options generally
have the outlook that the asset will remain neutral or expect a mild directional view.

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Expiration dates are an important concept of options contracts. Each option contract has a
specific expiration date, which is the date by which the buyer of an options can exercise their
right. Option contracts can have expiration dates that range from a week to several years.

Options contracts come in two types: American and European. American options can be
exercised at any time before the expiration date, while European options can only be
exercised on the expiration date. Most stock options are American style and index options
are European style.

When an investor buys or sells an options contract, they pay or receive a premium. The
premium is the price paid for the option contract and is determined by several factors,
including the cost of the underlying asset, the strike price, the expiration date, and the
volatility of the underlying asset.

In summary, understanding the basics of options contracts will establish foundational

knowledge to maximize income in your portfolio. The expiration date, strike price,
volatility and premium are key components that investors must consider when buying
or selling options contracts. By understanding these concepts, investors can make
informed decisions about which options and strategies to employ in their
investment portfolios.

KEY TERMS AND CONCEPTS IN OPTIONS TRADING

Call option: A contract that gives the buyer the right, but not the obligation, to buy
an underlying asset at a specified price within a specified time period. Selling or
Writing a call option obligates the seller to sell the underlying asset at the strike
price if the holder exercises their right.

Put option: A contract that gives the buyer the right, but not the obligation, to sell
an underlying asset at a specified price within a specified time period. Selling a
put option obligates the seller to buy the underlying asset at the strike price if the
holder exercises their right.

Strike price: The price at which the underlying asset can be bought or sold by
exercising the option.

Expiration date: The date when the option contract expires.

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 Premium: The price paid by the buyer of the option to the seller for the right to
buy or sell the underlying asset at the strike price.

Intrinsic value: the difference between the current price of the underlying asset
and the strike price of the option, if the option is in the money. If the option is out
of the money, its intrinsic value is zero.

Extrinsic value (Time Value): The portion of an option's premium that reflects the time
remaining until expiration and the potential for the underlying asset to move in a favorable
direction. It is the difference between the option's premium and its intrinsic value. Extrinsic
value decreases over time as the option approaches expiration and can be affected by
changes in expected future volatility.

In-the-money: A term used to describe an option that has intrinsic value. For a call
option, the underlying asset is trading above the strike price, and for a put option,
the underlying asset is trading below the strike price.

Out-of-the-money: A term used to describe an option with no intrinsic value. For a

call option, the underlying asset is trading below the strike price, and for a put
option, the underlying asset is trading above the strike price.

Delta: A measure of the change in the price of an option relative to the change in
the underlying asset's price. Delta also approximates the probability of an option
being In-the-Money at expiration and used by traders to select a strike price for trading
options. For example, a delta of 30 would indicate that the option value would change
by 30 öre if the stock moves 1 SEK.

III. OPTIONS AS AN INCOME GENERATION TOOL

One of the advantages of using options for income generation is that options can be
sold on a wide range of underlying assets, including stocks, exchange-traded funds
(ETFs), and indexes. This gives investors a great deal of flexibility in choosing which
assets they want to sell options on. Additionally, options trading strategies can be
used to increase income in both bullish and bearish market environments.

Understanding a few key ideas will significantly aid the options trader in increasing
the income in their portfolio. First, traders should hone in on the concept of time
decay of an option’s extrinsic value as it approaches expiration. As options contracts
approach their expiration date, their value tends to decrease at an accelerating pace
when all other factors are held constant. Options sellers can benefit from this time
decay acceleration by collecting premiums on an options’ extrinsic value as it
approaches the expiration date.

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HOW AN OPTION IS PRICED

PREMIUM
INTRINSIC VALUE + EXTRINSIC VALUE

“In-the-money” Time Implied

ITM Value Volatility

Internal factors that External factors that

affect the option’s price affect the option’s price

When you're starting to trade options, one of the first things you'll need to understand
is how an option's price is determined.

Underlying Stock's Price: Options are derivatives, meaning their value is derived from
another asset, which in this case is a stock. Therefore, the price of the underlying stock
plays a significant role in determining an option's price. If the price of the stock moves
higher, call options tend to increase in value, while put options typically decrease in value.

Strike Price: The strike price of an option is the price at which you can buy (for call options)
or sell (for put options) the underlying stock if you choose to exercise the option. Options
that are “In-the-Money” are more expensive than those that are “Out-of-the-Money”.

Time to Expiration: Options have an expiration date, and the amount of time until expiration
will affect the price of an option. The more time an option has until it expires, the more it’ll
be worth. This is because the longer the time frame, the higher the probability that the
option could become profitable at expiration. This aspect of an option's price is also
referred to as time value.

Implied Volatility: Lastly, implied volatility plays a crucial role in options pricing. Volatility is
a measure of how much the price of the underlying stock is expected to move. If a stock
has high implied volatility, that suggests that the stock's price could change drastically in a
short period of time, which increases the probability of the option being profitable at
expiration. As such, options on high-volatility stocks are more expensive.

All these factors come together to determine an option's price. As an options trader,
understanding these factors can help you make more informed decisions, optimize
your trades, and ultimately, generate a consistent income from options trading.

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COMPARISON WITH DIVIDEND STOCKS
Dividend Stocks are a popular choice for income-oriented investors due to their regular
dividend payouts. However, one drawback of dividend stocks is that when the dividend is
paid, the stock price tends to drop by the dividend amount, resulting in a decrease in
principal investment. In contrast, income generation using options allows investors to
receive income without experiencing a drop in the underlying asset's value. This feature
can be adventageous for investors who want to generate income while preserving the
value of their investment.

However, dividend stocks have some drawbacks that option income strategies can help to
address. For one, the income from dividend stocks depends on the company's performance,
which can be subject to market and economic factors. Additionally, dividend stocks are often
concentrated in a few sectors, such as utilities and consumer staples, which can limit
diversification opportunities.

On the other hand, options income strategies can provide investors with a more stable
income stream that is not dependent on the performance of a single company or sector.
Moreover, options income strategies can offer higher income potential than traditional
investments such as dividend-paying stocks and bonds. In particular, options income
tends to be highest in sectors historically paying the lowest dividend yields, such as
high-growth sectors like technology and healthcare.

By utilizing options trading strategies such as selling covered calls on these

high-growth stocks, investors can generate a higher income stream than relying solely
on dividend payments. It's important to note that these strategies also come with unique
risks and should be carefully considered.

COMPARISON WITH BONDS

Investors looking for income-generating investments often turn to bonds to build an
income. Bonds are considered less risky than stocks, making them a popular choice
for more risk-averse investors. However, a low or rising interest rate environment has
made it challenging for investors to generate income through bond investments
without sustaining losses on principle.

One key advantage of using options for income generation over bonds is the potential
for higher returns. Selling options for premiums can generate income that is often
higher than the yield of many bonds. Additionally, options income strategies can be
tailored to fit a wide range of market conditions, including bullish and bearish
market outlooks, which provide a more established income stream than bonds.

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Another advantage of options income strategies over bond investments is the flexibility
that options provide. With bond investments, investors are typically locked into a fixed
interest rate for a set period of time. With options income strategies, investors can adjust
their strategy as market conditions change, providing the flexibility that is not available
with bond investments.

In the following section, we will cover some basic options income strategies that can be
used to generate income while managing risk.

IV. BASIC OPTIONS STRATEGIES FOR INCOME

(PART 1 - SIMPLE STRATEGIES)
This section will cover some basic single-leg options strategies that investors can use to
generate income. These strategies involve buying or selling a single option contract,
making it easy to understand and execute. While these strategies may not offer the same
level of risk mitigation as more complex options strategies, they typically provide higher
income potential.

SELLING (WRITING/SHORTING) OPTIONS

The concept of selling options versus buying options is an important distinction to
understand regarding options trading for income generation. With options, an investor
can sell to open an option contract. This is the same as writing an option or going short
an option. When an investor buys an option, they pay a premium for the right to buy or
sell the underlying asset at a predetermined price and date. This gives the buyer the
potential for significant profit if the market moves in their favor. However, if the market
doesn't move as anticipated, the buyer can lose their entire investment.

On the other hand, when an investor sells an option, they receive the premium paid by
the buyer for the right to buy or sell the underlying asset. In this case, the seller of the
option is obligated to either purchase or sell the underlying asset at a predetermined
price and date. The seller's profit is limited to the premium they receive, but their
potential loss is unlimited if the market moves against them.

Buying options can be an effective way to profit from a market movement, but it can also
be risky. Selling options can provide a more consistent income stream and potentially
reduce the overall risk of an investment portfolio. However, it's important to note that
selling options also comes with its own set of risks.

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COVERED CALLS
One of the most popular options income generating strategies is selling covered calls.
This strategy involves selling call options on stock or ETF that the investor owns in their portfo-
lio. The investor collects a premium for selling the call option. If the stock's price remains
below the strike price of the option at expiration, the option expires worthless, and the
investor keeps the premium. However, if the stock's price rises above the strike price,
the investor may be required to sell the stock at the strike price, which can limit the
potential upside of the investment.

Selling covered calls involves selling call options on an underlying asset already owned.
Let's say an investor owns 100 shares of a stock, currently trading at 500 SEK per share. To
implement a covered call strategy, they could sell a call option with a strike price of 550
SEK that expires in 45 days, for a premium of 10 SEK per share. By selling this call option,
the investor gives the buyer the right to purchase their shares at 550 SEK within 45 days.
In exchange for this right, the buyer pays a premium of 10 SEK per share upfront.

COVERED CALL
BULLISH OUTLOOK →
Sell 550 SEK Call @ 10 SEK

GAINS
CAPPED
550 SEK

LOSSES

If the stock price remains below 550 SEK at expiration, the call option will expire worth-
less, and the investor will keep the premium as income. If the stock price rises above 550
SEK, the buyer may exercise the option and purchase your shares at the strike price of 550
SEK. In this case, the investor would still earn the premium of 10 SEK per share but would
also be obligated to sell their shares at the strike price of 550 SEK. If the stock price
declines, they will keep the premium, which can offset some losses.

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One of the potential benefits of selling covered calls is that it can provide a regular income
stream for investors. Investors can receive premiums that add to their overall investment
returns by selling call options on their underlying assets. Additionally, selling covered
calls can provide some downside protection to the underlying asset. If the asset price
declines, the premium received from selling the call option can help offset some
losses.

However, it is important to understand the trade off of the income from covered call. If the
stock price rises above the strike price, potential gains above the strike price may be missed.

Selling covered calls can effectively generate an income stream in your investment portfolio.
To implement this strategy effectively, OptionsPlay’s research team has backtested various
expiration dates and strike prices to optimize for both income and capital appreciation of
the underlying investment. Our research has shown that the optimal expiration date for
covered calls is typically around 45 days. For selecting a strike price, our preference is to
pick strike prices using a probability-based approach. For this, we use the metric Delta (commonly
calculated on most options chains and analysis platform such as OptionsPlay). The optimal strike
price for a covered call using this method is a 10-15 delta call option. For example with a
stock currently trading at 500 SEK, a 45 day call option with a 10-15 delta strike price could
be about 50 SEK higher, or the 550 SEK strike price. This translates to a strike price where
the stock has only a 10 to 15% chance of being above this strike price on its expiration day.
Such a low delta strike price will prioritize capital appreciation of the underlying asset over
higher income.

OPTIMAL COVERED CALLS

OPTIMAL EXPIRATION OPTIMAL STRIKE PRICE

45 DAYS 10 - 15 DELTA

CASH-SECURED PUTS
Another options income strategy is selling cash-secured puts. Cash-secured puts are a
relatively underused options income strategy for increasing income while managing

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risk. The process involves selling put options on an underlying asset that an investor is
willing to purchase at a predetermined price. By selling the put option, the investor
receives a premium upfront in exchange for the obligation to purchase the asset if the
buyer of the put option decides to exercise their option.

Here's an example of how a cash-secured put works: an investor wants to purchase

100 shares of a stock currently trading at 200 SEK per share. Instead of placing a limit
order to buy the stock at 190 SEK, the investor could sell a put option with a strike
price of 190 SEK that expires in 30 days for a premium of 10 SEK per share. If the stock
price remains above 190 SEK at expiration, the put option will expire worthless, and
you will keep the premium as income. If the stock price falls below 190 SEK, they will
be obligated to purchase the stock at 190 SEK per share but still, get to keep the 10
SEK premium. This would effectively reduce the cost basis of the stock purchase
from 190 SEK down to 180 SEK, offering a 10 SEK or 5.26% discount.

CASH SECURED PUT

BULLISH OUTLOOK →
Sell 190 SEK Put @ 10 SEK

GAINS
CAPPED

LOSSES 180 SEK

BREAKEVEN

Unlike buying the stock with a limit order at 190 SEK, selling a cash-secured put at a strike
price of 190 SEK can provide some downside protection and increase income. If the stock price
falls below 190 SEK, the investor still gets to purchase the stock at the strike price and would
have the premium to offset some losses. Still, there is a risk that the stock price could continue
to decline, and you could be forced to purchase the stock at a higher price than the market
price.

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Even so, it’s important to note that risks are still associated with selling cash-secured puts.
If the stock price declines significantly below the strike price, the premium received from
selling the put option may not be enough to offset the losses. Additionally, if the stock
price remains above the strike price, the investor may miss out on potential gains above
the strike price.

In summary, cash-secured puts can be a handy tool for investors looking to produce
income and purchase stocks at a discounted price. OptionsPlay’s research has shown
that the optimal expiration date for cash-secured puts is typically around 30-45 days,
and the optimal strike price is a 30-40 delta put option using our probability-based
approach of selecting strike prices. When selecting strike prices for cash secured puts,
it is best to select strike prices that are close to the current price of the underlying to
prioritize the probability of being assigned.

OPTIMAL CASH-SECURED PUTS

OPTIMAL EXPIRATION OPTIMAL STRIKE PRICE

30 - 45 DAYS 30 - 40 DELTA

V. ADVANCED OPTIONS STRATEGIES FOR INCOME

(PART 2 – COMPLEX STRATEGIES)
In addition to single-leg options strategies, options trading also has multi-leg strategies
that investors can use to create income. These involve combining two or more options
positions to create a more complex position with a specific risk/reward profile. This
section will review some popular multi-leg options strategies for income generation,
such as credit spreads, straddles and strangles, and iron condors. While these strategies
can be more complex than single-leg ones, they offer more flexibility regarding risk
management and profit potential. However, they can also be more challenging to
execute and require a deeper understanding of options trading.

COVERED COMBOS: STRADDLES AND STRANGLES

Covered combos are advanced options strategies that involve owning the underlying asset
while simultaneously selling both a call and a put option. When implementing a covered
combo, a covered straddle involves selling a call and a put option with the same strike price,
whereas a covered strangle involves selling a call and a put option with different strike prices.

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The goal of implementing covered combos is to profit from the premiums collected from
selling the options and potentially from a rise in the underlying stock’s price. The premium
received from selling the options is kept as income regardless of whether the asset price
remains within the range of the strike prices at expiration.

One of the key differences from the naked short straddle and strangle strategies is that the
risk profile changes dramatically due to owning the underlying stock. While there is still
potential for losses if the stock price declines significantly, owning the stock provides some
protection against the unlimited risk associated with naked short strategies.

For example, let’s say an investor owns a stock at 500 SEK and simultaneously sells a 475
SEK put for a premium of 10 SEK and 525 SEK call option for a premium of 10 SEK. The
investor would profit from the premiums and a modest rise in the stock price. However, if
the stock price falls significantly, the investor could face losses, albeit mitigated by the 20
SEK premium income and the potential for acquiring more shares at a lower price through
the put option sold.

COVERED COMBO

BULLISH OUTLOOK →
SELL 525 SEK CALL @ 10 SEK

GAINS
CAPPED

LOSSES Sell 475 SEK Put @ 10 SEK

This strategy is often used by more experienced investors. However, the strategy has
several benefits, including high premium income and potential for reduced risk
compared to naked short strategies. Also, it allows for potentially buying more shares
at a lower price or selling the owned shares at a higher price.

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Based on OptionsPlay's research, the optimal covered straddle involves selling options
with a 45-day expiration date and an at-the-money strike price. For the optimal covered
strangle, it is recommended to sell options with a 45-day expiration date and a 15-delta
strike price on each side.

As always, it's essential to consider your risk tolerance and investment goals carefully
before implementing a covered combo strategy. While they can offer potential for high
income and reduced risk compared to naked short strategies, they still carry significant
risk if the stock price declines substantially. Hence, these strategies are not suitable for all
investors.

OPTIMAL COVERED COMBO

OPTIMAL EXPIRATION OPTIMAL STRIKE PRICE

45 DAYS 15 DELTA

CREDIT SPREADS
Selling credit spreads are one of the most popular complex options strategies that involve
both selling and buying a call or put option on the same underlying asset. The goal of a
credit spread is to profit from either a neutral or directional move in the underlying while
limiting the potential losses if the underlying moves in an adverse direction.

A credit spread can be broken down to its two primary components, a short call or put that
provides the investor with income, unless the underlying moves against the expected outlook.
While a long call or put provides the ability to limit the losses when the underlying moves
against the expected directional outlook. A credit spread also offers the ability to significantly
reduce the margin requirement for establishing an income strategy.

Here’s an example of a bullish credit spread: let’s say an investor views a stock currently
trading at 500 SEK as undervalued and believes that it will either maintain its current
level or rise, they could sell a put option with a 500 SEK strike price and receive a
premium of 25 SEK and buy a put option with a strike price of 475 SEK Put option
and pay 15 SEK. The net premium of the credit spread received would be equal to the
difference in premiums, or 10 SEK.

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BULL PUT CREDIT SPREAD

BULLISH OUTLOOK →
Sell 500 SEK Put @ 25 SEK

GAINS
490 SEK CAPPED
BREAKEVEN

LOSSES
CAPPED

Buy 475 SEK Put @ 15 SEK

In this example, if the stock were to stay above the 500 SEK strike price, the investor
would keep the 10 SEK as both put options would expire worthless. However, if the
stock were to drop below the 475 SEK strike price, the investor would suffer a loss of
15 SEK. The goal of a credit spread is to provide an investor the ability to profit from
both a neutral or directional view with limited losses. This versatility provides investors
with a forgiving strategy that can be deployed in almost any market condition or
directional view.

It is important to understand that credit spreads offer higher probability of profit, the
tradeoff for it is a worse risk to reward. Typically credit spreads will risk more than the
potential income because there are more outcomes that provide profit over loss.
Despite this, it is still one of the most popular income generating strategies used by
investors due to its fairly simple application for all market outlooks. OptionsPlay’s
research has shown the optimal expiration date for credit spreads is 45 days to expiration,
and to sell a 50 Delta (At the Money) call or put while buying back a 25 Delta call or
put to offset the potential losses.

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OPTIMAL CREDIT SPREADS

OPTIMAL EXPIRATION OPTIMAL STRIKE PRICE

SELL LEG: SELL 50 DELTA

45 DAYS
BUY LEG: BUY 25 DELTA

IRON CONDORS
Iron Condors are another advanced multi-leg options strategy for generating income.
This strategy is often used in markets with high volatility. It involves selling both a call
credit spread and a put credit spread on the same underlying asset, aiming to profit
from the premiums received from both spreads expiring worthless.

The call spread is created by selling a call option at a higher strike price and simultane-
ously buying a call option at an even higher strike price. The put spread is made by
selling a put option at a lower strike price and buying one at an even lower strike price.

By selling both the call and put spreads, investors create a range of prices within which
the underlying asset can trade. If the price stays within this range until the options
expire, both spreads will expire worthless, and the investor will keep the premiums
collected from selling the spreads.

Here's an example of an iron condor strategy: let's say an investor believes that a stock
currently trading at 500 SEK will remain range-bound and not experience significant
price movements. They could implement an iron condor by selling a 530 SEK call option
for 8 SEK, buying a 550 SEK call option for 3 SEK, selling a 470 SEK put option for 8 SEK,
and buying a 450 SEK put option for 3 SEK. An iron condor can also be broken down
into 2 credit spreads, this is effectively selling a 530/550 SEK Call Credit Spread and a
470/450 SEK Put Credit Spread at the same time to construct an iron condor.

In this example, if the stock remains between the 470 SEK and 530 SEK strike prices at
expiration, all options will expire worthless, and the investor would keep the premium
received from both the call and put options, which would be equal to the net premium
received of 10 SEK. However, if the stock were to move beyond either the 450 SEK or 550
SEK strike price, the investor's losses would be limited to the difference between the
strike prices minus the net premium received of 10 SEK. The iron condor strategy
provides the investor with a limited-risk, limited-reward approach, allowing them to
potentially profit from a neutral market outlook while defining their potential losses.

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IRON CONDOR
→ NEUTRAL OUTLOOK ←
Sell 470 SEK Sell 530 SEK
Put @ 8 SEK Call @ 8 SEK

LIMITED GAINS

LIMITED LIMITED
LOSSES LOSSES

Buy 450 SEK Buy 550 SEK

Put @ 3 SEK Call @ 3 SEK

It's important to note that while iron condors can be an effective income-generating
strategy, they come with their own risks. If the underlying asset's price moves outside of
the range created by the call and put spreads, the potential losses can be higher than
the income potential of the trade.

OptionsPlay's research has shown that the optimal expiration date for iron condors is
typically around 30-45 days, and the optimal strike prices for both the short call and put
should be a 30 delta strike price.

OPTIMAL IRON CONDORS

OPTIMAL EXPIRATION OPTIMAL STRIKE PRICE

30 - 45 DAYS 30 DELTA

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SUMMARY:
Options trading provides basic and advanced options strategies that investors can
utilize to increase income while mitigating risk. Single-leg strategies like selling covered
calls and cash-secured puts can provide investors with a steady income stream while
limiting potential losses. Multi-leg strategies like credit spreads, straddles and strangles,
and iron condors offer more flexibility in terms of risk management and increased
profit potential. OptionsPlay's research can help investors identify the optimal strategy
for their investment goals and risk tolerance.

VI. MANAGING RISK IN OPTIONS TRADING

Trading options can be an effective way to generate income and diversify your portfolio,
but it's important to remember that options trading also involves risks. With the potential
for unlimited losses and the complexity of options trading strategies, it's crucial to have a
plan for managing risk. This section will review some fundamental risk management
principles in options trading and provide strategies for minimizing risk and protecting
your portfolio. A solid risk management plan can help ensure investors are comfortable
with their trades.

IMPORTANCE OF RISK MANAGEMENT

Options trading carries unique risks that can result in significant losses, including the
potential for unlimited losses in certain types of trades, such as selling naked options.
One key aspect of managing risk when trading options is a clear understanding of
each trade's actual risks and rewards. Options traders should carefully consider their
investment goals and risk tolerance and only enter trades that align with their overall
investment strategy. Utilize tools such as OptionsPlay to create and analyze trades
can provide investors with a clear understanding of the full risks and potential
rewards of a options strategy before execution.

In addition, options traders should have a plan for managing potential losses. This
may involve setting stop-loss orders to automatically exit a trade if it reaches a certain
loss threshold or using other risk management tools such as position sizing and
diversification.

Having a plan for managing risk can help options traders avoid emotional decision-making
and stick to their trading strategy even in the face of market volatility. It can also help
traders avoid the pitfalls of overconfidence and greed, which can lead to taking on
excessive risk.

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KEY STRATEGIES FOR MANAGING RISK
One of the keys to successful options trading for income is having a plan to manage
risk. Here are some strategies that investors can use to help manage risk when trading
options for income:

Set stop-loss orders: One way to limit potential losses is to set stop-loss orders
on positions. A stop-loss order is an order to sell a security when it reaches a
certain price point. By setting a stop-loss order on a position, investors can
limit their losses if the position moves against them.

Use position sizing: Position sizing involves determining the appropriate

amount of capital for each trade based on the potential risk and reward. Using
position sizing, investors can limit their exposure to any position and help
manage overall portfolio risk. Many professional investors have a set % of their
account value where each position will never risk more than that amount per
trade.

Diversify: Diversification is a strategy to spread risk across multiple positions

and asset classes. By diversifying their options trades, investors can help
reduce their exposure to any position or market. Diversifying across long and
short positions, across sectors and geographic regions can be ways to
ways to mitigate overall portfolio risk.

Monitor and adjust: It's essential for investors to monitor their options positions
regularly and adjust as needed. This can include closing out losing positions,
rolling positions to different strikes or expiration dates, or hedging positions with
other options, contracts, or underlying assets.

Stay disciplined: Finally, one of the most vital strategies for managing risk
when trading options for income is to stay disciplined. This means sticking to a
predetermined plan, not letting emotions drive decision-making, and avoiding
unnecessary risks.

Using these strategies, investors can effectively manage risk when trading options
for income and improve their chances of success in the options market.

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VII. INDUSTRY BEST PRACTICES FOR PROFITABILITY
Several industry best practices can help improve profitability when trading options
for income. One of the most important is to have a disciplined approach to trading,
including a well-defined trading plan that outlines entry and exit criteria, risk management
strategies, and profit targets. Sticking to the plan and avoiding making impulsive
trades based on emotions or market noise is also important.

One industry best practice for professionals when trading options for income is to
never risk more than 1-2% of their total account value on a single trade. This practice
helps to limit potential losses and preserve capital, which is critical for long-term
success. By limiting the amount of capital at risk on any trade, professionals can
manage their overall risk exposure and avoid significant drawdowns that could
negatively impact their account balance.

Another reason this is a best practice is that it allows professionals to maintain a

diversified portfolio of trades. By not tying up too much capital in any single trade,
professionals can spread their risk across multiple positions and asset classes, reducing
the potential impact of any one trade on their overall portfolio. This can improve the
consistency of returns over time and reduce the overall volatility of their portfolio.

It's important to note that while this is an industry best practice for professionals, it
can also be applied to individual investors who are trading options for income. By
limiting their risk exposure on any given trade, individual investors can help to protect
their capital and improve their chances of long-term success.

The options trader should also stay informed about market conditions and trends. This
can involve using technical analysis and fundamental analysis to identify opportunities
and risks and keeping up to date with news and events that can impact the market.

Finally, using reliable and accurate tools and resources to assist with options trading
is essential. This can include options analysis software, market data sources, and
educational resources to help investors make informed decisions.

By following these best practices and continually evaluating and refining the trading
strategy, investors can properly manage their risk while increasing their profitability
when trading options for income.

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VIII. CONCLUSION
In conclusion, options trading can be a powerful tool for income generation, allowing
investors to profit in various market conditions while managing risk. Options strategies
like selling covered calls, cash-secured puts, credit spreads, straddles, strangles, and
iron condors can be used to generate income from existing investments, create new
income streams, and even limit downside risk.

OptionsPlay's research and analysis tools can help investors identify optimal strategies
and strike prices based on their individual risk tolerance and investment goals.

SUMMARY OF KEY POINTS AND STRATEGIES

1. Options can be used to generate income through various strategies, including selling
covered calls and cash-secured puts.

2. Multi-leg options strategies, such as credit spreads, straddles, strangles, and iron
condors, can offer more flexibility in risk management and profit potential but can
also be more complex to execute.

3. It's important to have a plan to manage risk when trading options, including setting
stop-loss orders and diversifying across multiple trades.

4. Industry best practices for managing risk include never risking more than 1-2% of
your total account value on a single trade and avoiding overleveraging your positions.

5. OptionsPlay's research suggests that the optimal expiration date for many
income-generating strategies is around 30-45 days, and strike prices can vary
depending on the specific strategy.

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RECOMMENDATIONS FOR FURTHER LEARNING AND RESOURCES:
If you're interested in learning more about how to utilize options for income, many
great books and resources are available. Here are a few recommendations to get you
started:

Nasdaq Derivatives Academy. Options Trading for Private Investors. This course for
private investors covers all the basics you need to know to be able to make your first
options trade. (This course is in Swedish)
https://www.nasdaq.com/derivatives-academy#course1

OptionsPlay Nordic is a valuable resource for Nordic investors looking to learn more
about using options for income generation. It provides a user-friendly platform that
allows investors to analyze potential options trades, view educational content, and access
real-time market data. Best of all, OptionsPlay Nordic is free for Nordic investors, making it an
accessible and cost-effective way to learn more about options trading.
www.optionsplay.se

"The Options Playbook" by Brian Overby: This book is a great resource for beginners
and explains basic and advanced options strategies clearly.

"Options as a Strategic Investment" by Lawrence G. McMillan: This book is another comprehen-

sive guide to options trading and covers both basic and advanced strategies in detail.

The Options Industry Council (OIC) website: The OIC is an industry organization that
provides free educational resources on options trading, including webinars, online
courses, and articles.
Investopedia website: Investopedia offers a wealth of information on options trading,
including articles, tutorials, and quizzes to test your knowledge.
https://www.optionseducation.org

Options can help investors of any experience level generate income, and having a solid
understanding of the underlying principles and strategies will provide the knowl-
edge necessary for success. These resources are a great starting point, but it's also a
good idea to start by watching our courses to help you get started.

https://optionsplay.lpages.co/educational-courses-copy/

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