How to Generate Consistent Income Trading Options

How to Generate Consistent Income Trading Options


Hey everyone. This is Kirk here again at optionalpha.com
and in this video I want to go trough, hopefully, the entire process and lay the foundation
for how you can generate consistent income trading options. My goal in this video is to basically bring
everything that we learned in track 1 together and kind of lay the foundation for now going
out and doing more tutorials in track 2 about how we can find trades, placing orders, things
like that. I think it is important that we first cover
the broad strokes. We have to understand where we’re going so
we know what the path is to get there. For something to be powerful and profitable
it doesn’t have to be complicated. Yet, more often than not, when I present this
system that I’ll be presenting to you right now to new traders and even experienced traders,
they believe that making money with options must mean crazy systems and thousands of indicators. But the reality is it’s just not that case. You see, I love this chart because it’s so
clear that effectiveness and simplicity are on a linear path together. Meaning for something to be extremely effective,
it also must be very simple. Options trading definitely has its complicated
parts. It’s not as easy, as black and white, as buying
stock and selling stock. That doesn’t mean that it’s extremely complex
and that you have to have all of these different indicators and all of these different ways
of thinking about trading. You do have to learn a little bit. You do have to put in a little bit of effort
and work at it, but it is a very simple process when we talk about it at the high level. Some of the things I’m going to say below
in this video you may not like or won’t be what you envisioned this game to be, but regardless,
it’s what you need to be doing to be successful. So here they are. The five things I believe you have to do to
be successful in the options trading space. 1. You have to trade small positions
We’ll go through each and every one of these bullet points in this video because it’s a
little bit longer tutorial, but I think it’s worth it to watch it the whole way through. 1. You have to trade small positions
It kind of goes without saying, but if you trade too large, you’re just going to blow
up your account. 2. You have to trade with a high probability
of success Again, just to use a completely opposite example
of this, if you invest in lottery tickets, they don’t have a high probability of success. The likelihood that you’re going to win is
really, really low. You have to invest in something that has a
high probability of success. We’ll help you figure out how you can find
that in this video. 3. You have to be in liquid stocks and options
I think it goes without saying, but if the market is not liquid, I mean there’s no other
participants in there, you’re the only person, or you and five other people in the entire
world are the only participants in there, then you’re going to lose a ton of value to
slippage and you may not even be able to get in or out of a trade. That’s obviously a critical component. 4., probably one of the most important, is
using the right strategy We’ve talked [add neausea 00:03:02] about
how implied volatility is our edge in trading. If you believe that implied volatility is
our edge in trading then you have to also believe that you should be generally selling
options when implied volatility is high and, if you ever do buy options, you should be
buying them when implied volatility is low. You have to play that volatility game. We’ll prove here in the video in a very different
way than we have before how that’s the case where direction is meaningless compared to
implied volatility. 5. You have to be doing it as many times as you
can This gets down to the number of occurrences,
the number of times that you trade. Creating a large frequency of trades so that
over time you hit your expected probability level, whatever you’re targeting. Most traders do one or two, that’s the reality,
but they don’t do all 5. You can’t pick or choose. It takes all of them to win long term in this
game. Let’s take an example. If you trade small positions in liquid stocks
using the right strategy as many times as you can, but you didn’t have a high probability
of success, you would not win. That’s just the reality. You can choose any of these things and you
throw one out and it crumbles the whole thing. This would be like lottery tickets. Lottery tickets are liquid. It’s the only strategy you can use. You can do it as many times as you want. It’s a really small investment, $1, but it
has low probability of success. You’re never going to win. You could trade in something that has a high
probability of success in liquid stocks and options using the right strategy as many times
as you can, but your position size is too big and one bad trade that comes along wipes
out your entire portfolio. You can’t do one or two or three or four. You’ve got to do all five. Finally, just to drive home the example even
more, you could trade small positions with high probability of success in liquid stocks
and options using the right strategy, but if you only did it one time, how often are
you going to win? If you only did it one time or two times,
heck, even ten times a year, how often are you really going to win? How often are ten trades actually going to
work out in your favor? It doesn’t work. You take one of these building blocks away
and the whole thing crumbles. This is what most people miss in this space,
in my opinion. They do one or two or three of these, but
they don’t do all of them. Let’s dig in a little bit deeper here and
start talking about trade size. This is something we’ve covered before in
depth, but at Option Alpha we firmly believe, and I’ve believed this for a long time, that
your trade size should be no more than 1-5% of your account balance. If this is your account balance on the left
hand side, meaning how much capital you have in your account, this should be your sliding
scale of trade allocation size. Obviously, in my opinion, I think most of
the time you should play in this sandbox, meaning the 1-2% region. Even at a $250,000 account, which is a large
account, 1% is $2500 of risk per trade. You can do a lot with $2500 of risk per trade. You don’t need to be going up to the $12,000
of risk per trade. That also means that if you have a small account,
say you’re trading under $5,000, you may need to increase your position size because of
the small account so that you can get some trades across. You may need to move up to the 2% or 3% level. There are definitely trades that you can place
out there for $100 or $150 risk. Are you going to make enough money to quit
your job and sail away on a cruise ship or yacht or whatever? No, you’re not, but you have to be realistic
with your expectations. If you trade too large with a small account,
don’t make the assumption that making or having more money in your account is magically going
to make you a better trader. I can guarantee that if you can’t make money
with an account $15 – $5,000, there’s no way you’re going to make money if you had an account
of $100,000. You’re just going to lose money a lot quicker
with more money. Focus your time, if you do have a small account,
on making small high probability trades, like we’re going to discuss, because that’s how
you win in this game. It’s a long term game of slowly building up
capital and profits. Obviously the next part of that is high probability
of success. This is something that we’ve talked about
[add neausea 00:07:22] because we know what the probabilities of winning on trade are
or not. We can show you here in a second. Remember, markets move in a more or less normal
distribution pattern. We actually showed in one of the previous
videos here on track one. We went back all the way to 1990 and tracked
the Dow Jones daily move and it was almost exactly a normal distribution from 1990. Are there times when you’ll have five or six
days of up moves? Yes. But, generally, over time markets move in
a normal distribution pattern of percentage up or percentage down moves. If we take that normal distribution pattern,
we know that over time, as a stock moves, we can figure out what the percentage range
is that the stock might move 68% of the time. We can take this stock. If this stock was at $50, we could look on
our charts and on our broker platform and see that there’s a 68% chance it moves between
$60 and $40. Those are known numbers. This is how we can then determine what types
of high probability trades we want to get into. At that point it’s just a matter of choosing
which direction you want to go. It really doesn’t even matter at that point. Here’s the deal. Here’s a high probability example of a trade
that you can make in SPY. SPY, at the time that I grabbed this chart,
was trading at 203. The April options, which are about 22 days
away, you can see exactly what the probability of each and every strike price being in the
money is at expiration. Remember, this is calculating based on the
entire trading history of the S&P, or whatever stock you’re looking at. Every move it’s every made, up or down, the
magnitude of every move, how fast it’s moved in a given time period, and then implied volatility. All of those numbers are then populated into
a broker platform where you can see what the probability that each and every strike is
going to be in the money at expiration. In this case, if the stock right now is trading
at 203, we know that in the next 22 days, there is a 31% chance that the stock goes
from 203 up to and above the 205.5 call strike. We know that that’s the probability. So if there’s a 31% chance that it goes above
that level, that means that there is basically a 70% chance that it never goes above that
level. If we’re option seller, which we usually like
to be, then we would sell these 205.5 calls and basically take in a credit of $152 knowing
that we’ve got about a 70% chance that the stock never gets to our strike price. Again, these numbers are know. You can basically pick what likelihood of
success you want to have. The field is open. The buffet is open. You choose how often you want to be successful. At Option Alpha, we usually choose around
the 70% probability of success range. It works in the same way in the opposite direction
with puts. Down below the market we also know that if
the stock is trading at 203.20 that in the next 22 days there is only a 30% chance that
the market goes below 198.5. We know these numbers. They’re known numbers. That means that there’s a 70% chance that
the stock market doesn’t go below 198.5. 70% chance that it stays above this level
at any point between now and expiration. If we were to sell these put options, we could
see these put options for $122 and have basically a 70% chance of success. Notice, it really doesn’t matter. There’s a slight difference in pricing here. In most cases there’s going to be a slight
difference in either direction one way or another, but generally speaking you’re collecting
about the same amount of money for the same probability of success on either end. So really direction is meaningless compared
to making high probability trades and being on the right side of volatility. We’ve got more video tutorials on that here
at Option Alpha. We don’t have time to go into every possible
strategy and how you can figure out the probability of success, but this is a great example. I just want to show you guys that it’s known. You can choose your probability of success,
however successful you want to be in the trades that you make. Here at Option Alpha we choose about the 70%
level. We find that that’s a good risk reward for
what we try to do. Next, it’s important we focus on just stocks
and ETFs with really great liquidity because slippage can literally rob you of your potential
profits. Here’s the deal, here’s SPY. This is not the time that I did the other
screenshot here, although it’s very similar pricing, but completely different time. That tells you the market’s been completely
sideways since then. That’s pretty interesting. When I took this screenshot of slippage, it’s
important to note that SPY is one of the most highly traded ETFs and options that are out
there. You can see the volume and open interest category
for both the calls and the puts side here is insane. There’s a lot of people who are trading these
options. As a result, the options have very very narrow
slippage, or very tight bid ask spreads. You can see even far out of the money, around
201.5 and even at 204.5, the slippage is down to around a penny or two pennies per trade,
very very tight slippage. Apple, another great example. Highly liquid stock, highly liquid options. Look how many people are trading. The volume in open interest for each of these
contracts in Apple, there’s a lot of liquidity in these markets. What that means is that there’s very minimal
slippage. There’s not a lot of slippage in the difference
between what you can buy an option for and what you can sell it for, the bid ask spread. Even with these incredibly tight bid ask spreads,
we’ll still lose a little bit of money to slippage trading options in these super liquid
options. Here’s how the math works out. If you have an option that has a one penny
wide bid ask spread. I want to get you to the full value here. You times that penny by 100, which is the
contract multiplier. Remember, each option contract controls 100
shares of stock. So one penny times 100 times one contract,
if you just buy one contract, times two sides to every trade, meaning you’re basically going
to lose this slippage as soon as you get into a trade and as soon as you get out of a trade. Most people don’t cover that part of it. They only assume slippage happens once and
then it’s done, but you lose it twice, effectively. So you lose that slippage twice. That means that every time you trade just
one option in Apple or SPY, we’re losing $2 per trade. Again, every single time that we trade Apple,
just one contract, you lose $2. If we traded each stock one time each month
for a year, we’d lose $48 just in slippage. That’s little slippage, that’s minimal slippage,
the least amount of slippage you could possible have. Let’s not deter you though. The profits we can generate, just trading
one spread each time, cover slippage and commissions each year. But what about other stocks? This is the important part here about choosing
liquid underlying stocks and options. Here’s an example of Nike. Nike is kind of middle of the road. I wouldn’t consider this to be insanely high
slippage. I think there’s things that are even wider
than this, they’re $.50 to $1 wide. Nike is not necessarily a very liquid underline. In this case you can see that the slippage,
even for at the money options, is pretty wide. We’re talking about $.10 – $.12 wide of slippage
between the bid price and the ask price. It’s reflective in the fact that there’s not
a lot of volume and open interest for these contracts, generally. There’s a couple people trading, and that’s
okay, but there’s not a lot of volume and open interest for Nike contracts at the time. Here’s how the math work out on Nike. You’ve got a $10 bid and ask spread. Times the 100 contracts multiplier. Times one contract if you just get into one
contract. Two sides, because you’ve got to open and
close it. That means $20 per trade you’re losing just
in slippage. We didn’t even talk about commissions. Every single time that you trade just one
contract in Nike, we’re losing $20 to slippage. Talk about starting out in the hole. You get into a trade, you’re down $20 immediately. And you wonder why most traders don’t make
money in this business. If we traded Nike one time each month for
an entire year we would lose $240 in total. That’s 1 stock and 12 trades. You wonder why people don’t make money in
this business. It’s because they’re not focused on highly,
highly liquid underlines. Thankfully for you guys, we did build a watch
list here at Option Alpha that pre screens all of the possible stocks and ETFs out there
for liquidity. We update this list on a rolling basis to
make sure that these options and stocks both have a lot of liquidity and fairly tight bid
ask spreads. We focus here at Option Alpha on around 80-100
stocks and ETFs depending on how we screen them out. We built this watch list software into our
platform. It’s totally proprietary for us that we built. It’s really cool because now you can focus. I just want to focus on, let’s say, EFTs only. Now you can scan and filter between ETFs or
earnings trades. You can say I want to see the highest implied
volatility stocks first or the lowest implied volatility stocks first. Whatever you want to do. It’s all prebuilt into this platform. We don’t give you the ability to search for
any stock here because we’ve already scanned the entire universe and we’ve basically chosen
the top 80-100, depending on the month cycle that we’re in. We’ll constantly update and monitor this. We’ve basically given you the list of 80-100
of the most liquid underlying, ETFs, stocks, everything, so that you have the ability to
focus on just those that work for you. It’s a way that we help kind of get you to
where you need to go here at Option Alpha. The next part of this is choosing the right
strategy. Now that we’ve focused on highly liquid underlyings,
which we can do here for you. You don’t have to do on your own. Now we have to focus on the right strategy. Remember, our edge trading options is the
ability to consistently sell high implied volatility setups that we have already proven
are historically over priced and gives us the widest possible margin for error while
still being able to make money. What that basically means is that as volatility
expands, all option prices go up, It we want to profit, we need to be selling implied volatility
when it’s high because that means we’re selling options when their prices are already high. As volatility contracts, all option prices
go down. That’s all options on both sides in both cases. As volatility drops, all prices go down. That means that if we are going to be an option
buyer, we would never want to buy options when implied volatility is high because if
implied volatility drops, we would lose value in those contracts that we bought just purely
on the drop in implied volatility. Right now I want to prove this point here
with a quick example in EWW. You can do this on most broker platforms. On thinkorswim it’s really great because you
can basically go in here and simulate what would happen for different movements in either
volatility or the stock price itself. In this case what we’ve done here is we’ve
basically built out a simple call credit spread. We’ve sold the 59 calls. We’ve bought the 60 calls. The stock right now is trading at 56.08. We’re selling options above the market. Stock’s trading at 56.08. We sold the 59 calls and bought the 60 calls
and we’re taking in a credit of $.18 on the trade. Just to kind of set the foundation here. At this point, we haven’t made any adjustments
to the stock or to the options. This is just the current value of that spread. You can see that there’s no adjustment to
volatility. There’s no adjustment to the stock. This is kind of like the open and available
price of the security right now. What would happen if we just simulated a 10%
rise in implied volatility? The stock gets more volatile, but doesn’t
more. Look at this. The stock never ever moved from 56.09. Just adding that increase in volatility of
10%, which is a small increase across the board, you see that the value of these options
goes up to $26. So a 10% increase in volatility, no movement
in the stock at all, and the value of these options go up. These 10% move up in volatility caused a 44%
increase in the price of the spread. If we were selling this spread, that would
be a loss in this case because we sold the credit spread and IV went higher. That goes against what we’re trying to do. We’re trying to make money if implied volatility
drops by selling options. We try to make money by buying options and
hoping that implied volatility rises. You have to be on the right side of volatility. This is assuming the stock doesn’t move, which
likely won’t happen. Let’s do this now. Let’s assume that the stock actually dropped
in value to $55.09. It basically went down $1, which is exactly
what we wanted it to do. But, implied volatility still rose by 10%. This is the classic case where traders will
email me and say, “Hey Kirk, the stock went the direction that I wanted it to. It moved the direction I wanted it to, but
I still lost money”. You still lost money because implied volatility
is still a bigger factor than the stock price. In this case, that implied volatility move
still caused the value of this option to go up even though the stock went the direction
that we wanted. Even after a $1 move down in EWW, which is
exactly what we wanted, the price of the spread still increased because of volatility expansion
by more than 22%. Now let’s do this. Let’s look at a drop in volatility of 10%. Let’s assume that volatility foes the right
way, the way that we want it to go, and the stock price goes against us by $1. Remember, the stock was originally at $56.09. Now the stock goes against us. Remember we sold the 59.56 credit call spread. We don’t want the stock going towards 59. We want to stock going away from 59. Let’s assume that the stock goes up by $1,
but in that time period implied volatility dropped 10%. Notice that the value of this option now decayed
just to $.08. It went down and we now have a profit on this
trade. With a $1 move higher, against our position,
and a 10% drop in implied volatility the spread made a profit and dropped to a value of $8
per spread. Do you see now why most traders lose money
even if they get the direction right? I still am blown away every time I go through
this example that this is the case and most people don’t get it. You must be on the right side of volatility. The right strategy in the wrong market, meaning
the right position in the wrong market where you don’t get the direction right can still
win. How do you know if something has high implied
volatility? Here at Option Alpha, what we teach is to
use IV percentile or IV rank. You can use it on your charts and basically
you can track a graph of implied volatility and you can see where the spikes are in implied
volatility. All the red circles here, these are spikes
in implied volatility. These are the time periods where you want
to be selling options, where you want to be a net seller of options. You want to use strategies like credit spreads,
iron condors, strangles, straddles, etc. When implied volatility is really low, you
don’t want to be selling options. You don’t want to sell options because remember
if implied volatility rises, then even if you get the directional move in the stock
right, you’re going to lose money based on that rise in implied volatility. It’s actually fairly easy. This is a concept that most people don’t understand,
but it’s fairly easy to see visually where implied volatility is on the charts. If you don’t have thinkorswim or you can’t
get this, we do have it here at Option Alpha inside of our watch list. We have all of these filters here that basically
help you scan and filter out high implied volatility and sort by high implied volatility
rank. Now you can go in here and you can say I just
want to look at ETFs. I want to sort by highest implied volatility. Now you can see here that these are the implied
volatility ranks, 0 to 100, for each and every security in this chart. You can see these are the different implied
volatility ranks. Right now, EWZ, at the time we’re doing this
video, has the highest possible implied volatility of ETFs that we’re looking at right now. UNG, not as high. It’s in the 60’s. GDX is below 50 so we probably wouldn’t do
anything in GDX because it’s just too low. If you wanted help in just understanding what
strategy to used based on implied volatility, what we’ve also built into the platform, which
nobody else has out there, is the ability to actually look at and give you suggestions
on the best possible strategies for this current implied volatility rank in every different
scenario. You can see here with a 61 IV rank, you want
to be trading credit spreads and butterflies and iron condors. With a 70 IV rank, you want to trade strangles
and straddles and iron butterflies. With a 46 IV rank, you want to trade debit
spreads and calendars and diagonals. We’ve basically done the heavy lifting for
you and given you a pre screened liquid watch list that tells you exactly which stocks and
options have the highest implied volatility and then tells you what the best option strategies
are so that you’re always on the right side of volatility. As a special bonus, we have also added the
one day, one week, and one month expected ranges. Meaning, we know that the stock will move
68% of the time in these ranges. We already pre-calculate them for you. If you wanted to make a monthly trade in EWZ
and you wanted to have a 68% chance of success, you’ve got to be selling options around $19
and above $32. Remember stock right now is trading at 25.67. It already pre-calculates what the likelihood
is that the stock will move so that you know exactly how far out you want to sell options
to have about a 70% chance of success. Insanely helpful. Now that we’ve covered one through four, the
final piece is just to realize that your chance for success increases with time and frequency. Remember that in order to get long term consistency
we have to remember the law of large number which states that as a sample size grows,
or the number or trades that you make, the mean will get closer and closer to the expected
value of the population. In real English terms, what this means is
that if you are targeting a 70% chance of success, you might not hit a 70% chance of
success on your first trade or your first two trades or your first ten trades. But if you make a lot of trades, say 1,000
or even 10,000 trades, over the course of your career, not necessarily in one month
or one year. The longer you stick with it and the longer
you target that 70% level, the more consistent you’ll be. Consistency over time is just a numbers game. Just to use that head and tails example that
we’ve used before in previous videos, if you start flipping a coin heads and tails, your
first three results of flipping that coin might be all tails. Like your first three trades might be all
profits or your first three trades might be all losers. That doesn’t necessarily mean that you’re
going to have that same trajectory or that same path. If you keep flipping the coin time and time
again, you toss the coin four times, 100, 1,000, 10,000 times, the more you toss that
coin, the closer you’re doing to get to your expected result. Whatever you target, that’s where you’re going
to get. This is why casinos have table limits because
they want people to play more so they have more spins, more rolls, more chances at making
money. They realize and they recognize that their
success is directly tied to the number of times that people play their game. They play their game on a small scale. If a casino has one spin and they’re playing
a game where the odds are stacked against them, players are behind 51% of the time after
one spin. It’s probably their best opportunity to make
money. But after 100 spins, or after 1,000, or even
after 10,000 spins or plays at a casino game, there’s almost a 100% chance that you’re going
to be behind to the casino or the casino’s going to win because their edge is going to
have played out over hundreds and thousands of different spins. This is why casinos try to get you back to
them. That’s why they offer free meals and free
drinks and free hotel rooms. They know the more times you come, the more
plays that you have at black jack or roulette or whatever the case is, the better and better
their chance of success are. The more that they can get you to play, the
higher their probability of winning is. You’re going to hit what you’re aiming for. This is why trade size and high probabilities
are so important for smaller accounts. You have to be able to place enough trades
so that over time the numbers work out in your favor. They will. Just like the coin flip. One thing that I didn’t mention that we were
going to talk about but I want to introduce here is the concept of stacking or laddering
trades on a consistent basis. I wanted to do this because as we get towards
the end of track one here and as you complete track one, it’s really important to understand
this concept because oftentimes what people will say to me is, “Kirk, I don’t know how
often. I don’t know how to space my trade. What should I be looking for”? We’ve covered most of that but I think this
concept of stacking or laddering is going to be really helpful to you. It’s just purely meant to get the juices going
between your ears. There are many ways to do this, but the concept
is very much the same. What most people do when they get out and
start trading is they start making these one off monthly trades. They don’t do enough of them. So they make four trades a year or five trades
a year. When you look at it, if this is the market
right now, if this is the time period you made a trade back in Apple, you might have
sold a call option here at 124 and then you sold a put option here at 110 or any combination
of strategies that included selling that call and that put. But you basically draw a really hard line
in the sand that’s one trade. Maybe it’s a big trade position size, maybe
you do 10% of your account balance in that one trade. It’s still a high probability trade, but you
end up pigeon holing yourself to the market move because you have one spot to get in,
one opportunity to make that play. It doesn’t mean that it’s not going to work. It just means that if you make one trade here,
one trade here, that’s your second trade all year. Then you make three trades so now you’ve made
three trades all year. You have a low likelihood of actually seeing
a profitable result at the end of the year because you just didn’t trade enough and your
initial position size was probably too large. You can still move and be flexible with the
market, depending on where the market is every single month. On the other hand, what we favor here at Option
Alpha, are smaller incremental trades throughout the month and throughout the year. Instead of placing one big trade, we’re going
to place these little trades. Here would be a strike price, but this might
only be 1% of your account balance. This trade right here might be a different
trade or a different call option that is 1% of your account balance. Now we’re spreading the risk and averaging
around where the market’s trading. For example, if the market’s trading here,
we sell a call option here and we sell a call option here. Then a couple days later when the market’s
a little bit higher, we sell another call options and adjust our strike prices so that
we’re trying to stay neutral and even and balanced around the market. As the market trades we continue to adjust
our strike prices and follow the market wherever it goes over time. Each trade that we’re doing is small, slow,
consistent, and high probability. We’re just spacing out the trades over time
and I think that’s a better way of going about it. This is called stacking or laddering trades. A lot of these things look like little stairsteps
or little ladders that you can put on a chart. It’s visually how I think about it. This doesn’t mean that we’re moving away from
monthly options into weekly options. We’re still placing a monthly contract every
single time. Sorry, weekly fans. We’re spreading our entry out over one to
two plus weeks in the same security. For example, if we wanted to sell six iron
condors in Apple, rather than enter all six today, maybe split up your order to three
today and three next week. It’s that type of concept because it increases
your occurrences. You’re still doing six, but now you’re spreading
the trades out over time. You’re giving the market a little bit of time
to move and you’re giving yourself a little bit of opportunity to be flexible with the
market. A simple schedule for you would be something
like this. Calendar dates don’t matter. Let’s say for you getting started, you would
come in every single Wednesday and come in and try to make a trade. On Wednesday you’d make a trade in something
that has high probability, a high implied volatility, make a trade. The next Wednesday you come in, make another
trade. The next one, you make another trade, etc.
etc. etc. You get on a consistent schedule. As long as you’re starting out, this is a
good way to do it. Get on a consistent schedule to make trades
because you don’t want to just make trades necessarily when the market is high or low
because you don’t know when that is. How do you know when the market is high or
low. I feel like the better way to go about it,
the mathematical approach that you should be taking, is making a consistent schedule
of getting in and making trades. You could also take the approach, if you want
to be a little more consistent, instead of making five trades every month you come in
and make ten trades every month. On Tuesday you make a trade then on Wednesday
you make another trade then the next Tuesday you make another then the next Wednesday you
make another etc. etc. etc. As long as you realize that this idea of stacking
or laddering can basically be your key to slowly getting into positions. Keeping a neutral portfolio and keeping that
balance and increasing the number of occurrences so that you hit your targeted probability
of success, that’s what’s really important here. The key here with stacking or laddering is
that it gets you into a consistent pattern of selling options in small chunks versus
one big positions each month. More importantly, you are reacting to the
market much quicker. If you enter a trade on Tuesday and Thursday
of every week, you can average into whatever the market’s doing. Just to wrap up here, as far as generating
consistent income with trading. The game plan should include these five things. If you don’t have one of these five things,
there is no way you can be successful long term. You have to believe in each one of these five
aspects because it’s insanely important to your ability to generate money. It means you have to trade small positions. They have to be with a high probability of
success in liquid stocks and options using the right strategy and you have to do it for
a long time. Hopefully this has been really, really helpful
and kind of lays the foundation for what we’re going to talk about further in our training
in track two and track three here at Option Alpha. Congratulation on completing track one. If you’ve made it this far in this video and
you’re watching all the way to the end you’ve really done an amazing job going through all
of this training. I can definitely tell you that you’re probably
at least ahead on 90% of the other people out there who don’t get even this far. I can tell you right now, you don’t want to
quit. You don’t want to give up. Continue on to track two and three. We’re going to get even deeper and deeper
into strategy, order entry, managing trades, and everything that goes along with being
successful in trading options. Hopefully you’ve seen now the opportunity
that options have to give you a very reliable and stable income base in your portfolio. It is a little bit of a tough trek ar some
points, but I can tell you honestly that it’s completely worth the journey if you’re willing
to take it. I’d love to get your comments, your feedback. If you love this video or any of the stuff
that we’re doing here at Option Alpha, please share this online. Help spread the word about what we’re trying
to do. Until next time, happy trading.

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