Top 3 Options Trading Strategies for Monthly Income

Discussion in 'Traders Corner' started by Michael Gonsalves, Aug 26, 2023.

  1. Michael Gonsalves

    Michael Gonsalves Member Staff Member

    Jun 26, 2016
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    According to a report in CNBC TV18, there has been an exponential rise in options trading in India.

    However, SMB Capital has rightly pointed out that most traders think that stock options are just a CHEAP WAY to play big up moves on stocks by buying CHEAP call options. But what they are missing is that options are an INCREDIBLE potential source of CONSISTENT cash income. This potential consistent cash is available to almost every trader and investor if they learn just a few BASIC options trading strategies that can be understood in a few minutes.

    SMB has explained THREE of the best options strategies for earning consistent monthly income which every trader can IMMEDIATELY implement these in their online broker account, just like many great money managers and traders do daily.

    The three strategies discussed are the following:

    Cash Secured Puts

    This is one of Warren Buffet's favourite strategies which every conservative investor desiring to invest in Blue-Chip stocks should adopt.

    Instead of straightaway buying the stock upfront, we sell a Put at the desired stock price and collect the premium. If the stock closes above the strike price, we keep the premium. Otherwise, we accept delivery of the stock by way of assignment of the Put option. Our purchase price will be the strike price less the premium received. Many brokers like Zerodha and Upstox charge brokerage of 0.25% if the stock is assigned.

    The drawback of the strategy is that if the stock spurts, we miss out on the gains that we would have made if we had simply bought the stock instead of selling the Put option.

    Also, the premium received is taxable as business profits at the rate of 30%+. Short-term capital gains are taxable at 15% while Long-term capital gains are taxable at only 10%.

    In a real-life example, a trader earned 41% through this strategy and heavily outperformed the Nifty (see Trader of Options In Blue-Chip Stocks Earned 41% While The Nifty Gave Only 18%. Even Conservative Investors Can Adopt This Strategy And Super-Charge Their Returns)

    Covered Calls

    Covered Calls are yet another ideal strategy for conservative investors and traders. In this, we buy blue-chip stocks like ITC, Reliance, HDFC Bank etc and sell OTM Calls against them. If the stock closes below the strike price, we keep the premium. Otherwise, we keep the premium and give delivery of the stock.

    We can combine the Cash Secured Puts and Covered Calls to form the "Wheel Strategy".


    Credit Spreads

    Credit Spreads in Index Options are yet another easy and popular way to earn monthly income. We can ATM or OTM credit spreads in Call or Put options depending on our view on whether the market is bullish or bearish.

    If we are unsure of the market direction, we can combine both Call and Put option spreads to create neutral strategies like the Iron Condor or the Iron Fly.
    Last edited: Aug 26, 2023