Small Account Options Income Strategy (Easy)

Summary

In this educational video, Mike Bella Furry from SNB Capital introduces an options trading strategy designed for small account holders to generate weekly income of $500 or more. Head Trader Freudberg demonstrates how to use put credit spreads with the QQQ ETF to create consistent cash flow. The strategy involves selling a put option at a higher strike price and buying another put at a lower strike, capitalizing on the difference. The video also covers a recovery plan using call options if the market dips. The approach is shown to be effective with minimal capital and can be adapted for various market conditions, providing a valuable tool for traders seeking to maximize their account growth.

Takeaways

• 📈 The video introduces a trading strategy that can generate $500 or more per week with a relatively small trading account.
• 🤑 Mike Bellafury, head of options trading at SNB Capital, shares an income-generating strategy that requires surprisingly little capital.
• 📚 Options can be used not only to take advantage of big moves in stocks but also to create steady cash income on a weekly basis.
• 🔢 A put credit spread is a strategy where a trader sells a put option at a higher strike price and buys a put option at a lower strike price on the same underlying asset.
• 💰 The example given involves selling and buying QQQ ETF options, which track the NASDAQ 100 index, primarily tech stocks.
• 📅 The strategy involves selling put credit spreads that expire weekly, allowing traders to collect cash flow regularly.
• 📉 In the event of a market selloff, traders can switch to selling call options against long calls to manage losses and generate income until the market recovers.
• 💡 The video provides a detailed example of how to handle a trade loss and transition to a different strategy to maintain positive cash flow.
• 📊 The script includes a scorecard that tracks the performance of the put credit spread strategy over several months, showing consistent income.
• 🚀 The strategy can yield a significant return on investment, with a 20.5% return over three months and an annualized return of 82%.
• 🔗 Viewers are encouraged to learn more strategies by registering for a free workshop to enhance their trading skills and knowledge.

Q & A

What is the main strategy discussed in the video for generating weekly income through options trading?

The main strategy discussed is selling put credit spreads, which involves selling a put option at a higher strike price and buying a put option at a lower strike price on the same underlying asset, to create steady cash income on a weekly basis.

What is the minimum capital required to execute the put credit spread strategy as described in the video?

The video suggests that a fraction of $1,000 to $200,000 is needed to execute the put credit spread strategy, with a specific example requiring $4,410 in capital to start.

How does the video illustrate the put credit spread strategy using the ETF known as QQQ?

The video uses an example where the QQQ ETF is trading at $354.65, and the trader sells 10 put options at a strike price of $346 for 65 cents each and buys 10 put options at a strike price of $321 for 6 cents each, creating a put credit spread.

What is the outcome of the put credit spread trade if the underlying stock price remains above the short put strike price at expiration?

If the stock price remains above the short put strike price at expiration, both the sold and bought put options expire worthless, allowing the trader to keep the initial cash income from the trade.

What action is taken in the video when the QQQ ETF closes below the short put strike price for the first time?

When the QQQ ETF closes below the short put strike price, the trader closes the put credit spread by buying back the short puts and selling the long puts, incurring a net cash outflow or loss for that trade.

How does the video suggest managing a loss from a put credit spread when the market moves against the trader?

The video suggests reverting to the call side of the options chain, selling call options at the same strike price as the short puts and buying long call options further out of time to manage the loss and prepare for a market recovery.

What is the game plan described in the video for continuing to generate income after experiencing a loss on a put credit spread?

The game plan involves selling calls against the long calls held, expiring one week at a time, until the underlying asset rallies back above the short call strike price, at which point the trader closes the short and long calls and resumes selling put credit spreads.

What is the three-month campaign total gain presented in the video, and what is the annualized return of this gain?

The three-month campaign total gain presented is $530, with the most capital needed at any one week being $24,400, resulting in a 20.5% return for the 3-month campaign, or an 82% annualized return.

How does the video mention the comparison between the discussed strategy and the wheel option strategy?

The video mentions that the discussed strategy is similar to the wheel option strategy but uses much less capital, making it advantageous for traders with smaller accounts.

What additional option strategies does the video mention can be learned through a free workshop?

The video mentions three additional option strategies that can be learned: a unique options trick for making money while waiting to buy stocks or ETFs at a desired price, an options income strategy for consistent earnings regardless of market direction, and a method for making money on a stock or index trade even if the trade direction is wrong.

Outlines

00:00

💼 Capital-Efficient Weekly Income Strategy

This paragraph introduces a trading strategy that can generate weekly income of $500 or more with a relatively small trading account. Mike Bella Fury, from a top proprietary trading firm in New York City, presents an options trading strategy that can be learned easily. The video aims to teach viewers how to create steady cash income using options, contrary to the common belief that large capital is required. The strategy involves selling and buying put options at different strike prices to create a 'put credit spread,' which can be executed with a fraction of the capital typically thought necessary for such returns. The video also offers a beginner's guide for those new to options trading.

05:01

📈 Executing the Put Credit Spread for Consistent Income

The paragraph explains the process of executing a put credit spread using the ETF known as The Q's (ticker symbol QQQ), which tracks the NASDAQ 100 index. The strategy involves selling a put option at a higher strike price and buying another put option at a lower strike price, creating a credit spread. The example given outlines a trade where 10 put options at a strike price of 346 (sold for $0.65 each) and 10 put options at a strike price of 321 (bought for $0.06 each) are used. The net cash income from this trade is $590, requiring $4,410 in capital. The paragraph also discusses adjusting the number of credit spreads based on the account size and the outcome of the trade if the stock price remains stable or moves favorably.

10:04

🔄 Adjusting Strategy After a Loss: Transition to Call Options

After experiencing a loss when the QQQ ETF closes below the short put strike price, the strategy shifts to using call options. The plan involves selling calls with a strike price matching the previous short puts and buying long-term calls to protect against further declines. This approach is repeated weekly, selling calls that expire shortly, until the ETF rallies back above the strike price. At that point, the short and long calls are closed, and the original put credit spread selling strategy is resumed. The paragraph provides a detailed example of this transition, including the specific strike prices and cash flows involved in the trades.

15:07

📊 Three-Month Campaign Review and Strategy Recap

The final paragraph reviews the three-month campaign, highlighting the capital required and the returns generated. The most capital needed in any one week was $24,400, resulting in a 20.5% return for the campaign or an 82% annualized return. The paragraph emphasizes that despite a market selloff, the strategy can be adjusted to continue generating income with less capital than traditional methods. It concludes by encouraging viewers to learn more strategies used by professional traders and to register for a free workshop for further education on options trading.

Keywords

💡Trading Account

A trading account is a record of all transactions and positions in financial instruments for an individual or business. It is the core of a trader's operations. In the video's context, it refers to the account from which the presenter and viewers are trading options. The video suggests strategies to grow this account with a small initial capital.

💡Options Trading

Options trading involves buying and selling contracts that give the holder the right, but not the obligation, to buy or sell an underlying asset at a set price within a specific time frame. The video focuses on teaching a specific options trading strategy to generate income with a small trading account.

💡Capital

In the context of trading, capital refers to the money that an individual or firm has available to invest or operate with. The script emphasizes that surprisingly little capital is required to execute the options trading strategy being taught, which is a key point for viewers with small trading accounts.

💡ETF (Exchange-Traded Fund)

An ETF is an investment fund that is traded on stock exchanges, much like individual stocks. They are designed to track the performance of specific indices, sectors, commodities, or assets. In the video, the ETF QQQ is used as an example to demonstrate the options trading strategy.

💡NASDAQ 100 Index

The NASDAQ 100 Index is an index of the 100 largest non-financial companies listed on the NASDAQ stock exchange. It is heavily weighted towards technology companies. The video uses the performance of the NASDAQ 100 as a backdrop for the trading strategy being discussed.

💡Put Option

A put option is a financial contract that gives the owner the right, but not the obligation, to sell a specified amount of an underlying asset at a set price within a set time frame. In the video, selling put options is part of the strategy to generate income.

💡Credit Spread

A credit spread in options trading is created when an investor sells an option and simultaneously buys another option of the same type, with a different strike price and/or expiration date, to manage risk. The term 'credit' refers to the net premium received for entering the position. The video describes how to use put credit spreads to generate income.

💡Expiration

In options trading, expiration refers to the date on which an option contract becomes invalid if it has not been exercised. The video script describes the outcomes of the trading strategy on the expiration dates of the options contracts.

💡Strike Price

The strike price, also known as the exercise price, is the price at which the holder of an option can buy (in the case of a call) or sell (in the case of a put) the underlying asset. The video explains how the strike price of the options used in the trading strategy affects the outcome of trades.

💡Call Option

A call option is a financial contract that gives the owner the right, but not the obligation, to buy an underlying asset at a set price within a specific time frame. The video introduces selling call options as part of a strategy to manage losses and generate income when the market moves against the initial put credit spread trades.

💡Wheel Option Strategy

The wheel option strategy is an advanced options strategy that involves selling options against long-term call options to generate income. The video script compares the presented strategy to the wheel strategy but highlights that the strategy being taught requires less capital.

Highlights

A strategy that requires little capital to produce income of $500 or more per week is taught.

SNB Capital's options trading desk is based in Manhattan.

Options can be used for creating cash income on a steady basis.

A beginner-friendly video on options basics is available.

A strategy for making $500 weekly without needing a large trading account is presented.

The ETF known as The QQQ is used as an example for the trading strategy.

A put credit spread is explained as part of the trading strategy.

The cash flow of the trade is detailed, showing a net income of $590.

The importance of adjusting the number of credit spreads to fit account size is discussed.

A scorecard is provided to track the performance of the trading strategy.

Handling a trade loss with a plan for recovery is demonstrated.

A shift to selling calls against long calls is introduced as part of the strategy.

The concept of reverting to put credit spread selling after a market rally is explained.

A three-month campaign return of 20.5% is achieved with the strategy.

The strategy is advantageous for traders with smaller accounts.

Additional option strategies used by professional traders are offered for learning.

Transcripts

are you frustrated to have only a small

trading account well in this video our

head of options trading teaches you a

strategy that requires surprisingly

little Capital to produce income of $500

or more per week I'm Mike Bella Fury and

we're one of the top proprietary trading

firms located in New York City and proud

to have developed number seven and even

eight figure perear Traders watch take

notes and learn so you can grow your

trading account hi I'm freudberg and I'm

the head Trader of SNB capitals options

trading desk here in Manhattan and when

most people think about options they

think of them as a cheap way to take

advantage of big moves on stocks without

having to actually go out and buy the

stocks which of course is a part of what

options trading is all about but what a

lot of people don't realize is that

options can be used for a completely

different purpose and that is to create

cash income on a steady basis week after

week throughout the year here and that's

through the use of a very easy tolearn

option strategy that we're going to be

covering in today's video if you're

absolutely brand new to options trading

and you don't know much about options

and how they work we've created a video

for you to understand options Basics and

if you click the video appearing on your

screen right now it will lay out the

groundwork for you to understand this

simple strategy that we're going to be

covering so that you can generate cash

flow in your trading account then when

you're finished you can come back and

watch the rest of the video okay so what

we're going to be teaching you in

today's video is a strategy for making

$500 in most weeks of the year now most

people naturally think that produce that

kind of weekly uh cash income you'd need

a large trading account containing

somewhere between1 and $200,000 to even

have a shot at making that kind of cash

income but that's not the case at all

for the strategy that we're going to be

teaching you in this video in fact all

you need is a fraction of of that in

your account to execute what we'll be

describing in today's video okay so

let's get started as many of you know

the ETF known as The Q's which stands

for the ticker symbol QQQ is an ETF

which track which tracks a basket of

stocks mimicking the NASDAQ 100 index

which contains primarily tech stocks and

so as you know tech stocks have been on

a tear in 2023 after a weak year

previously and and throughout the first

five months and into the first few days

of June of this year the cues were up

34% for the year a massive rally in five

months so let's say that on the first

Friday in June on June 2nd with the q's

trading at

35465 you pulled up an options train

expiring a week later on June 9th and

you looked for a put option on that

options chain with a price of around 60

and in this case that was the 34 six put

which was selling for 65 cents and you

go ahead and sell 10 of those while

simultaneously buying 10 of the 321 puts

for 6 cents 25 points below the 10 that

you sold up at 346 and so when an

options Trader does that selling a put

higher up on an options chain and buying

a put lower on that same options chain

then he's entering what options Traders

refer to as a put credit it spread okay

so let's take a look at the cash flow of

this trade so you can start to

understand how it works and so starting

out with the 346 puts we sold for 60

remember each option represents 100

shares of stock that can be assigned to

the put seller so you multiply the 65

cents times 100 and we sold 10 of them

and so when you multiply it all together

the resultant cash income from selling

those 10 puts is $650

and using that same kind of math those

321 puts we bought for protection cost

us $60 resulting in net cash income of

$590 for this onewe trade which

incidentally requires

$4,410 in capital to execute now if you

don't have that much in your account all

you do is cut back the number of credit

spreads you sell to fit your account

size so for example if you sold half of

those put credit spreads you'd bring in

half of that amount of income and you'd

require half that amount of capital and

so forth now let's move to the day that

this credit spread expires on June 9th

and as you can see the stock barely

moved that week closing at 35450 on that

day and so what's the outcome of this

trade well let's take a look at that you

see both the 346 puts that we sold and

the 321 puts that we bought are located

at strike prices is well below where the

stock closed on the day that they

expired and so as a result both of them

expire with no value because who would

exercise their right to sell shares at a

price of 346 or 321 when the stock is

trading for a price of

35450 in the open market obviously no

one's going to do that so those options

just expire worthless resulting in the

result of the trade being that we get to

just keep that cash flow of $590 that we

first received when we first open the

trade okay so remember we're discussing

a way to pull 500 or so out of the

market most weeks on average in this

video and so that's going to be our

first trade that one we just completed

and so on the day that those options

expire we turn around and open up a new

trade expiring again a week later again

on June 16th and in this case the put

option that sells for 61 cents is the

342 and again 25 points below that is

the

317 which we're buying and paying 8

cents for resulting in$

53 of cash flow in this case as you can

see now moving forward to the expiration

date of this second trade you can see

that on June 16th that the stock rallied

nicely in that ensuing week closing at

36793 and so again with both the 342 and

317 puts expiring worthless being so far

below where the stock closed we again

just pocket the

$530 and so we just go ahead and repeat

this same trade opening a 25o wide put

credit spread with a short put priced

around 60 cents every week on Friday and

allowing it to expire the next Friday

and as it turns out we had a pretty easy

time of it throughout the summer and so

since each trade is essentially the same

to move this along we've created a

scorecard for you for each of those

trades which you can go ahead and check

for yourself by the way if you have

options data available to you and as you

can see through all of June and all of

July the expiration closing price of QQQ

was above the strike price location on

both the short and long put portions of

the put credit spreads on their

respective expiration days and so we

just kept collecting uh about you know

more than $500 in each of these weeks

okay so now on July 28th we entered our

first August trade and as you can see

just like we did in all the previous

cases we sold the 373 puts this time for

59 and we bought the 348 puts for 5

cents culminating in our receiving

$540 however in this case for the first

time since the campaign started in early

June the stock closes below the short

put strike of 373 and so at this point

if we do nothing then we're going to be

required to buy 1,000 shares of QQQ for

the puts strike price 373 which would

cost us

373,000 but we have a small account so

what are we going to do well here's how

we handle it a few minutes before the

market expires we're going to close that

put credit spread which that day would

have meant buying back the 373 puts for

a doll two and selling the 348 puts that

we were long for just one and when you

look at that cash flow of that buyback

you can see that the cost of the buyback

of the 373 puts was 1,020 and we only

got back 10 bucks for the long puts and

we only received 540 for getting into

this credit spread trade in the first

place and so once it's closed we have a

loss a net cash outflow this time of 470

and so we've experienced our first trade

loss as you can see from our updated

scorecard

but we have no intentions of allowing

that loss to hurt us in the long run

because we have a plan for this exact

situation so at the end of that same day

just a few minutes later we go to the

call side of the options chain that

expires a week later the August 11th

chain but this time we sell a call

option at the exact same strike price as

the short puts in the last trade in

other words we go to the

373 calls and we sell 10 of those and as

you can see in this case we get

$3.66 for those because those are so

close to where the stock is trading and

options close to the market price of a

stock will always be worth more than the

options farther away from that price and

so in this case we're selling the calls

this time but we're doing something else

simultaneously with selling those 10

calls and that is that this time we're

going to go way out to the end of the

year December 29th and we're going to

buy 10 of 370 calls expiring on that

date for

$24.7 now why are we doing this well

here's our game plan once we took that

first loss on the August 4th put spread

we're now going to be essentially

reverting to the call side and we are

basically going to be selling against

those December calls by each week

selling 373 calls expiring one week

later and so if the QQQ closes below 373

then we will let it expire and sell the

calls expiring in the next week so we're

going to do this repeatedly until the

q's rally back above 373 at which point

we will close the short calls and the

long calls expiring in December and then

resume our selling of put credit spreads

each week so that's our game plan now

keep in mind buying those 10 calls cost

us

24710 and so you should think of that as

the capital that we've deployed in the

trade at this time and remember at the

same time you sold those 10 calls for

366 so that part of the trade actually

creates positive cash flow of

3660 okay so let's move out to August

11th the date the calls we sold expired

and as you can see the q's closed at

36624 that day which is way below the

strike of 373 calls that we sold and so

those expire worthless why because when

you're talking about calls those have no

value if the stock closes below the

strike price of the calls because again

no one will exercise their right to buy

shares of the cues at 373 when it's

trading almost seven points below that

in the open market and so those calls

expire with no value meaning that we can

now update our profit chart to show that

we just gained a profit of

$3,660 for selling those calls and so we

just repeat the process because as we

said we're going to keep doing this

until we get a close above 373 on

expiration so we go ahead and sell the

373 calls expiring yet another week

later on August 18th but this time

because the stock has now fallen to well

below the 373 price three calls fetch a

lot less in this case a116 which as a

result produces a positive cash flow of

$160 and so let's update our score card

throughout the end of August and as you

can see the stock had dropped to 35813

on August 18th so those calls expire

worthless and we get to keep that 1160

in cash and moving to the August 25th

expiration we didn't get paid that much

for those 373 calls only $300

because in that case the 373 calls were

an even larger distance from The Q's

close on August 18th and so those had an

even lower price tigle on them and so

while the stock had begun to bounce it

still did not reach 373 by the end of

that week and so we again sell the 373

calls for the fourth time now with this

set of calls expiring on September one

as you can see in this case we received

90 cents for those producing 900 $ which

is an improvement upon the previous week

and so now let's move to September 1

when this trch of calls expires and as

you can see this time the cues have

closed at

3775 which is now well above our short

calls for the first time in a month if

we don't buy back those short calls when

they expire in the money we're going to

be obligated to sell 1,000 shares of the

cues to the owner of those calls but we

don't own 10,000 shares of the cues and

so remember we said that when the q's

close above 373 we'll close both the

short calls at 373 and the long calls

out in December at 370 and so toward the

very end of the day we're going to go

ahead and buy back those short calls

which are now priced at 463 and

simultaneously sell off the December

long calls for 2425 and so analyzing

what happen on that last transaction

we'll first look at the short calls for

which we received remember $900 but to

close them we had to pay out

4,630 so we lost 3730 on that trade and

don't forget we sold off those long

calls in December but that was for a

little bit less than we bought them for

so that accounts for a small loss of

$460 as well and so updating our

scorecard 3 months into this campaign we

can see that adding in the losses from

closing the short calls and selling off

the long calls results in a three-month

campaign total gain of $

5,30 which incidentally throughout the

campaign the most Capital we ever needed

on any one week's trades was

$24,400 so we'll call that our capital

for the campaign and that in turn

results in a

20.5% return for the 3-month campaign

and an 82% % return if you annualize

that 3-month experience and so after

this you just resume the original

practice of selling put credit spreads

bringing in about $500 or more per week

in most weeks and then in weeks where

the market closes below the short put

strikes you can do as we showed you in

this case buy back the put credit spread

Buy Long calls far out of time a little

bit in the money and combine that with a

campaign of selling calls against those

far out distant long calls repeatedly as

we just showed you it's a very similar

strategy to what some options Traders

would call the wheel option strategy but

this approach uses much less Capital

than the wheel strategy which is why

it's so advantageous to folks with

smaller accounts so what I'd like you to

take away from today's video is that you

don't need to have a massive amount of

capital to generate substantial positive

cash flow in your trading account in

most weeks a campaign of put credit

spreads can yield you incredible returns

in most weeks and when you run into a

bit of a selloff you can use this call

selling approach that we taught you in

the video until you can close the call

side and resume your put credit spread

selling Campaign which can go smoothly

for very long periods of time as we saw

especially on stocks with a mildly

bullish overall direction prot Traders

use these techniques all the time and

now you've got the knowledge to do this

yourself now if you'd like to learn

three more option strategies that our

prot Traders use including the unique

options trick that allows you to make

money while you wait to buy stocks or

ETFs at the price you want and the

options income strategy that allows you

to make consistent money whether the

market goes up or down or sideways and

how to make money on a stock or index

trade even if you're wrong on the

direction

then click the link that's appearing

right now at the top right hand corner

of your screen that will open up the

free Workshop registration page in a new

window so don't worry you won't lose

this video or you can register directly

for free at options.com