Options Trading Strategies for Consistent Monthly Income

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I bet most of you when introduced to Options trading, imagined of creating a fortune through it in no time. You would have heard stories where people doubled their investment or even made it 4 times in no time by trading Options. But how many of you were lucky enough to turn this dream into reality. I guess a very small percentage, and that too because they were extremely fortunate. But in actuality, you cannot just depend on luck to become an extremely successful trader. It’s better to have a regular cash flow than a one time fortune. In this post, we would discuss some of the popular options trading strategies for consistent monthly income. I have personally traded on these strategies and they are profitable most of the time without any adjustments.

Iron Condor Strategy

This is one of the most popular Options Trading strategies for consistent monthly income. This is a non-directional strategy consisting of 4 legs. That means you need to trade 4 option positions simultaneously to execute this strategy. Due to this reason, the margin required for this strategy is a little higher. Iron Condor is a combination of Bull put spread and Bear Call spread.

Here is how Iron Condor is constructed:

Sell 1 OTM Put: B
Buy 1 OTM Put (Lower Strike): A
Sell 1 OTM Call: C
Buy 1 OTM Call (Higher Strike): D

Below are some of the characteristic features of Iron Condor:

Profit Potential: Limited to the net credit received. Max Profit is achieved when the price of underlying is in between strike prices of the Short Put and the Short Call

Maximum Loss: Strike Price of Long Call – Strike Price of Short Call-Net credit received

Breakeven Point:

  • Upper Breakeven Point = Strike Price of Short Call + Net credit received
  • Lower Breakeven Point = Strike Price of Short Put – Net credit received

When to execute this strategy: This strategy should be executed when you are expecting a minimum movement in stock or consolidation phase.

Payoff Graph: Below is the payoff graph of this strategy

Iron Butterfly Strategy

Iron Butterfly is similar to Iron Condor except for the fact that At the money (ATM) options are sold in this strategy. It is suitable for more aggressive traders, but still the risk is limited.

Here is how Iron Butterfly is constructed:

Sell 1 ATM Put: B
Buy 1 OTM Put (Lower Strike): A
Sell 1 ATM Call: B
Buy 1 OTM Call (Higher Strike): C

Below are some of the characteristic features of Iron Condor:

Profit Potential: Limited to the net credit received. Max Profit is achieved when the price of the underlying expires exactly at the strike price where Call and Put options are sold.

Maximum Loss: Strike Price of Long Call – Strike Price of Short Call-Net credit received

Breakeven Point:

  • Upper Breakeven Point = Strike Price of Short Call + Net credit received
  • Lower Breakeven Point = Strike Price of Short Put – Net credit received

When to execute this strategy: This strategy should be executed when you are expecting a minimum movement in stock or consolidation phase.

Payoff Graph: Below is the payoff graph of this strategy

Iron Condor vs Iron Butterfly

As you would have noticed, both these strategies are very similar both in terms of execution as well as the breakeven point. There is no straightforward way to select one of them. While Iron Condor is more popular among traders, the Iron butterfly also does have its own advantages. Iron butterfly has higher profit potential among the two as you would receive more premium by selling ATM options. Iron Condor is better in terms of probability of winning as it has a wider profitable range.

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