Lesson 1 - Getting Wealthy By Selling Options

What the heck is an option and why do we want to sell these things?

I like to think of an option as a coupon. Let's say you are thinking of buying a watermelon in the not too distant future. And you think that the price of watermelons is going to increase. So you want to lock in today's price.

In this case, I agree to sell you a coupon (option) to buy a watermelon from me for $1.00 which is today's price. But I will charge you 10 cents for this coupon and it expires in 90 days.

Let's say 89 days go by. Your coupon expires tomorrow. If the price of watermelons is more than $1.00 and you still want your watermelon you should use the coupon. If the price of watermelons is below $1, you should forget the coupon and just buy a watermelon at the market price. This will allow the coupon to expire worthless and I would make a nice profit of 10 cents.

But what if you didn't want the watermelon but the price went up to $2. You could either buy the watermelon yourself using the coupon and sell it to someone else for $2, making you a nice 90 cents profit. (Remember you paid 10 cents for the coupon.) Or you can sell the coupon to someone else, for $1, also making you 90 cents. Either way you win, and I lose.

It's the same with stocks. Thousands of stocks, indexes, and futures have options available to trade. Options are gaining in popularity because of the immense leverage. In our example, all you have to invest was 10 cents to

control $1 worth of watermelon.

Let's look at our example above again. You buy an option for 10 cents, and you later can sell that option for $1 making you 90 cents. That's a 900% return on your money. If instead you had bought a watermelon at $1 and sold it later at $2, you would have made $1, or 100% return. 100% is great, but not compared to 900%.

What about me, the option seller?

In this scenario I would have to sell you a watermelon at $1. If I had one, you could have it. But if I did not have one, I would have to buy one in the market at $2 and sell it to you for $1.

Let's look at the other side. What if prices went down? Imagine prices went down to 50 cents. Your option that you bought for 10 cents would be worthless and you would have a loss of 10 cents. But what if instead, you had bought the watermelon at $1? You would have a 50 cent loss!

As the option seller, I keep the entire 10 cents you paid me.

As you can see, options are cheaper to invest in, they limit your loss, and they also provide leverage for higher percentage of profits.

Sounds like the perfect investment right? Let's go out and buy a bunch of these suckers.

Wait!

In our example prices went way up to $2 and way down to 50 cents. But what if prices didn't move much at all? What if the price stayed at $1? Then your option would expire and you would lose your 10 cents.

That would be the perfect scenario for the option seller. And guess what? This is what happens most of the time. In the news, you hear about the wild fluctuations of the markets. You hear about the stock that went from $10 to $100 or the ones that went the other way from $100 to $0. But

these are the few exceptions amongst the thousands of stocks that trade everyday. The majority of stocks move very little at all. Sure they move up, but then they also move down. Overall the move is measured in small percentages. If a stock moves 10% in a year it's a big deal.

Options need big moves to make money. That's why according to industry sources, 80% of all options expire worthless!

In the following lessons, we will cover

Lesson 2 - How options are a decaying asset. As an option gets closer to expiration, it losses value. So by selling options, everyday that goes by, makes you money. I call it Selling Time.

Lesson 3 - Making money if the stock goes up, down or sideways. If we sell a call option (I'll explain what a call option is in this lesson), we make money if the stock goes down or sideways, but we can also position our trade to make money if the stock goes up only a little. Making money three ways is much better than buying a stock and praying it goes up.

Lesson 4- Your Own Casino. Casinos have the odds stacked in their favor. Some people get lucky and win more than they lose, but casinos know that over the long term they will make money. That's their edge. Our edge is the same. As option sellers we can stack the odds in our favor. How does 80% probability of success sound to you? I'll show you how.

Lesson 5 - Not being glued to the screen all day. Option selling allows you to have a life, to get out during the day and not have to watch my monitor all day. You can put on my trades and spend about 15 minutes monitoring them a day. If you have a job or would like to have a life, my system of option selling is perfect for you.

Lesson 6 - No guesswork. You don't need to guess which way a stock will move, or use fancy technical or fundamental analysis. Don't need to know how to read the MACD or Stochastic or other indicators. I use simple statistics to figure my probabilities and can manage my positions using

concrete math, not voodoo or guesswork.

Lesson 7 - Limiting your risk. In this lesson I will show you how to limit the risk on every option trade you do. I hate losing money. So every trade I out on has limited risk. I know what my maximum loss can be on every trade, and if the trade goes against me, I make adjustments to my position to protect my profit or myself from the maximum loss. Even with an 80% probability of success, you will still have 2 out of 10 trades go against you. I do not believe in putting on a trade and not protecting it.

Lesson 8- Sure, steady, reliable income. In this lesson I will give you examples of trades that make 10% in a month. It's possible and there are people, like me, doing it each and every month. You can either leave your profit in the account and let it grow or withdraw it to live on.

Lesson 9 - We couldn't do this a couple years ago. Up until recently only market makers and very large traders could do these trades. The reason: commissions. As soon as three to four years ago you would have to pay $30-$40 to buy or sell a single option. Now you can to the same trade for less than $1. Online trading and lower commissions have allowed regular people like you and me the opportunity to trade for a living.

Lesson 2 - Options Are A Decaying Asset.

As an option gets closer to expiration, it losses value. So by selling options, everyday that goes by, makes you money. I call it Selling Time.

Have you ever heard the song, Time is On My Side by The Rolling Stones?

If yes, then you know what it feels like to be an option seller. Everyday that goes by, the options I sell lose value. And that means I am making money.

Let's use an example:

IBM stock is at $80. I sell you an option that expires in 30 days that allows you to buy IBM at $100 ($100 is the strike price of the option.). I charge you $1 for this option.

Now each option controls 100 shares, so this option worth $1 actually costs you $100. The only way you will make money is if IBM goes above $101 ($100 plus the $1 cost of the option) within 30 days. If IBM stays below $101, I make money.

The clock is ticking. Tick tock. Time is on my side. By the way, even though the markets are closed Saturdays, Sundays, and Holidays, options still lose value on those days. So the 30 days until expiration is 30 calendar days, not 30 trading days. Cool huh?

The seller of an option attempts to benefit from the decay of the option's time value. Time value captures the possibility, however remote, that the option may increase in value due to the changing value of the underlying stock. This value depends on the time until the expiration date and the volatility of the underlying stock's price.

If the underlying stock's price has not been reached by the strike price of the option, the option is considered to be out of the money. As time passes, if the option remains out of the money, the option gradually loses its time value.

The time value of an option is always positive and declines exponentially with time, reaching zero at the expiration date. Upon expiration, if the option is still out of the money, the option will have no value left, and it will expire worthless. Its holder will simply abandon the option leaving the option seller with the premium. (Premium is jargon for amount paid for the option.)

The entire premium for which I sold the option will be in your account, less commissions and fees. At that time, your position closes out automatically.

The graph above illustrates the accelerated decline of time value as expiration draws near. The graph allows you to see why an option is considered a "wasting asset". Time value erodes as each day passes. The rate at which the time value is eroding increases as the option's expiration nears. Notice that the time value decays the fastest during the last days of the option's life.

Notice how the option loses value fastest in the last 30 days. Because of this, we sell options no longer than 50 days left to expiration. We want our options to expire 50 days from now or sooner. The amount depends on the strategy used. Sometimes we can make 20% in a couple weeks, other times we make 10% in 40 days. It depends on the market and strategy used. But it is best to sell options 60 days or less to expiration to get as high a theta as possible. Theta is jargon for the amount an option loses value each day. So if an option has a theta of 10, that means that option will decline in value $10 each day.

In many cases, we don't even need to wait until the option expires to get out of the trade. Let's say we sell an option for $1, and 21 days later the option is worth 10 cents. We just made 90 cents. We should just buy back the option we sold for 10 cents and move on to the next trade. Even though we can make another 10 cents, it might not be worth it. We might find another trade that we can better use our money for. Getting out also locks in our profit.

So let's say we do a trade that has a maximum return of 12% in 50 days. If after 30 days we are up 9% it might be best to take the money and run. Instead of making another 3% in 20 days, we can probably find another trade that can generate a better return in the same amount of time.

In our next lesson we are going to learn how to make money on a stock whether it goes up, down, or sideways.

Lesson 3 - Making Money if the Stock Goes Up, Down or Sideways.

If we sell a call option (I'll explain what a call option is in this lesson), we make money if the stock goes down or sideways, but we can also position our trade to make money if the stock goes up only a little. Making money three ways is much better than buying a stock and praying it goes up.

When you buy a stock you make money when it goes up. If it goes down you lose money. And if it just sits there like a lazy dog, your money is just tied up, unless you get dividends. Normally if a stock you own moves sideways, it is called "dead money" because not only are you not making money, but you are not making the interest you could be making if the money was invested somewhere else. You lose twice.

But what if you could make money no matter which way the stock went? Interested?

Let's use Google for our example. Let's say Google is at $300. If you think Google is going up you can buy it for $300 a share. Or you can buy a "Call" option for $30. A "Call" option is the option you buy when you think a stock will go up in value. The other type of option is the "Put" option, which goes up in value if the stock goes down.

By buying a Call, we need GOOG to move up. Instead of that let's sell some options.

We can sell a "Put" option. This means we will sell an option to someone who thinks GOOG is going down. Let's sell the put at the $250 strike price for $2. This mean we get $200 for the option and the option will expire worthless if GOOG stays above $250. We think GOOG is going up so we are fine with that. The option will expire in 30 days.

Now if GOOG goes up, or sideways, and even down to $250 we still make money. This type of strategy works great when stocks are trending, meaning they continue to go in the same direction.

But sometimes we don't know which way a stock is going to go. What do we do then?

We can sell Calls and Puts at the same time.

Ok so GOOG is at $300. In 30 days we think GOOG is going to move up and down but we don't know where it will stop exactly. But are pretty sure it is going to be in a $100 range, so either up to $350 or down to $250. We can figure this out by technical analysis or using statistics and probabilities. (I'll show you more in a future lesson.)

So what we do in this case is we sell the $240 Put for $1.50 and we sell the $360 Call for $1.25. So we get a total of $2.75 or $275. Now as long as GOOG stays in between $240 and $360 we profit on both sides. Where it gets tricky is when GOOG breaks out of the range. That is the only way you can get hurt and if that happens I have advanced strategies that can save our money. I share these strategies only with members of my newsletter.

Considering the fact that stocks move in a sideways direction about 75% of the time, this strategy can make you some nice dough on a stock that is just bouncing up and down in its range. I personally wouldn't do this strategy on GOOG because it moves up and down too much, but it is easily done on indexes and ETFs.

In fact, this is one of the strategies we use every month. It's called the Iron Condor. We do basically what I described above but add in some risk and loss management. This one strategy brings in on average 10% every 30-45 days. So if you take just one trade a month, remember I try to come up with 3-5, but if you just trade this one strategy every month, you can bring home at least 50% for the year. We don't win every month, but we limit our losses in the months we do lose. In a future lesson I will walk you through an actual Iron Condor trade that I have done.

The best part is that you can start with as little at $2-3,000 in your account. If you do a Condor with one option, it will cost you, depending on

the stock or ETF, for example, $1,000 in margin, and you can make around $100 per month. With an 80% probability of success, this is one of my members' favorite strategies.

In our next lesson I will show you can have your own casino where people pay you to play.

Lesson 4- Own Your Own Casino Casinos have the odds stacked in their favor. Some people get lucky and win more than they lose, but casinos know that over the long term they will make money. That's their edge. Our edge is the same. As option sellers we can stack the odds in our favor. How does 80% probability of success sound to you? I'll show you how.

I view myself as a casino owner. Well, maybe not the owner because I don't own the stock exchange. But I do play the role of the "house". With close to 80% of all options expiring worthless, option buyers are basically gamblers looking to buy a lottery ticket. And I don't mind selling it to them.

Now keep in mind, that sophisticated traders also use options to protect their other investments but we can sell options to these guys too. That's why I say you can own a casino.

What I like to do is sell out of the money options. There are three types of options when it comes to price. In the Money, At the Money, and Out of

the Money. An example will help clarify things.

IBM is at $50. An At the Money Call option would be the one with the $50 strike price because that is where IBM is right now. If IBM expires today, this option would be the closest to making money.

All of the Call options with strike prices above $50 are Out of the Money. So the 55, 60, 65, 75, and 100 are all out of the money. These have no value except for time value (because they have time before they expire).

All of the Call options below $50 are said to be In the Money. Such as the 45, 40, 35, etc. If IBM expired today, the people owning these options would exercise them to buy IBM stock at lower than market price.

In the last lesson, I mention the Iron Condor trade. With the Iron Condor we sell options that are way out of the money. I use my statistics and probability calculations to decide exactly which options I want to sell. Because the options we sell are Out of the Money we receive less premium (money) for selling these options because the risk is less. You can also sell At the Money and In the Money options for a lot more money, but you would also lose a lot more often. Selling Out of the Money is the way to go in most cases.

The people who buy the options I write are gambling that IBM will get to the strike price I sold. If it does, good for them, I will just adjust my trade to protect my profit. It if doesn't I keep the entire amount I was paid for the option.

Choosing the right option to sell is the tricky part of option selling. Sell the wrong one and you could lose a bundle. Anyone can understand how options work and start selling them, but knowing which ones to sell and then how to adjust the trade when it goes against you is what I help you with. Since I have my own money doing the same trades I advise you to do, I stay on top of things and let you know as soon as any trade is in trouble and what to do about it. That's one of the reasons my members pay me: to watch over their trades so they don't have to.

It's great to have someone on your team that knows what he is doing in good and bad markets. When I first started this, I didn't know what I was doing. I lost over $5,000 on just one trade selling options. If I had someone with me whose shoulder I could watch over or bounce trading ideas off of, I would not have lost so much money.

At first I thought I just got unlucky, so I sold more options, but then lost another $6,000. I lost on other trades too, until I figured out what I was doing wrong. It was a very expensive education. Putting on the trades is the easy part. Adjusting the trade when it is in trouble is where the professional traders separate themselves from the amateurs.

I have seen an amateur trader and a professional trade put on the same exact trade on the same day, but in the end, the amateur trader

lost money on the trade while the professional made money.

In our next lesson I will show you how you can do the trades I do in just 15 minutes a day and I go through I real life trade that we made.

Lesson 5 - Not Being Glued to the Screen All Day.

Option selling allows me to have a life, to get out during the day and not have to watch my monitor all day. I can put on my trades and spend about 15 minutes monitoring them a day. If you have a job or would like to have

a life, my system of option selling is perfect for you.

I've tried day trading. I've tried jumping in and out of the market trying to make $1 on this stock, and 50 cents on that one, only to have my head handed to me on a silver platter. The most I made on a day trade was $800. I bought 100 shares of a stock and was waiting for it to move up. What I didn't know what the market was only open for half the day because it was the day before a holiday and the market closed while I still owned the stock. When the market reopened, the stock opened up $8 and I got out. It could just as easily gone down $8. Pure luck. I don't day trade anymore.

My trading style does not require you to be at the computer all day. You don't jump in and out. You don't have to pay thousands in commissions. You don't even have to be home all day. Nowadays you can take your laptop with you. I will email you when it is time to adjust a trade. You can then adjust the trade on your laptop or when you get home. My broker even allows customers to place trades using cell phones. Don't even need the laptop anymore.

Here is a real life trade we did so you can see how much time it will take you to implement my system.

On February 20, we did an Iron Condor trade using the RUT (index). Here is the trade:

Sell 1 MAR 660 Call at $1.98 Buy 1 MAR 670 Call at $1.58 Sell 1 MAR 380 Put at $4.05 Buy 1 MAR 370 Put at $3.50 The total credit we received was 95 cents per option. Our maximum loss was $9.05 per option. So our max return would be 10.5%.

For 7 days we didn't have to do anything. But the RUT was trending down. On the 28th we made an adjustment. The RUT was too close to our Puts.

Buy 1 MAR 380 Put at 14.43 Sell 1 MAR 370 Put at 12.33 Total debit of $2.10

Sell 2 MAR 310 Put at 4.53 Buy 2 MAR 290 Put at 3.18 Credit of $2.70

Also, our Calls had gone done a lot in value so I decided to buy them back to protect our profit. We could have bought these back and sold calls with a lower strike for more credit but we did not.

Buy 1 MAR 660 Call at .18 Sell 1 MAR 670 Call at .10 Total debit of .08

Again, several days go by without us having to do anything. In fact, we could have left the trade alone and our Puts would have expired worthless. But on March 5, We exited the trade.

Buy 2 MAR 310 Put at .22 Sell 2 MAR 290 Put at .12 Total debit of .20

We were in the trade from February 20 until March 5. That's 14 days including weekends. We made a profit of $127. That is more than we originally were going to make. Because of the adjustment, we had to increase our risk. If we had not adjusted, we would have lost around $200. Our adjustment not only saved us from losing money but made us more than we expected.

Members of our program that did this trade, actually had to do three trades: 1. Put on the trade Total time: 10 minutes (until you know what you are doing) 2. Make adjustment on 28/2 Total time: 10 minutes 3. Exit trade on 05/03 Total time: 10 minutes

Here's how it would work. On 20/02, you would get an email that a new

trade is on. You log into the members area to see the trade and any notes we have made about how to get in. You go to your broker's website (or if on auto trading this is done for you) and enter the trade either during the day for immediate fill or after hours to be filled the next morning.

On 28/02, you get an email saying we need to adjust and the exact adjustments to make. You log into your broker's website and enter the adjustment trade.

On 05/03, you get an email to get out of the trade. If you choose to do so you log into your broker's website and enter the trade to exit.

During this trade, RUT went from 546 all the way down to 448. That's an 18% move. For an index, that is HUGE. But members did not worry. We had our protection in place. We knew when we were going to make adjustments. And we were watching the situation for them.

So even though I say on the website that my trades will take you 15 minutes a day, it's more like 15 minutes a week.

In our next lesson I will show you how you can do the trades I do using concrete mathematics and statistics so you don't have to guess which way a stock will move or which options to sell.

Lesson 6 - No Guesswork.

We don't need to guess which way a stock will move, or use fancy technical or fundamental analysis. Don't need to know how to read the MACD or Stochastic or other indicators. We use simple statistics to figure our probabilities and can manage my positions using concrete math, not voodoo or guesswork

Do you understand support and resistance? If yes, good. If not, no problem. We don't use support and resistance much to choose which options to sell. Instead we use statistics.

In statistics there is a term called standard deviation. I am not going to get too technical here. If you need more info on standard deviation you can look it up.

Basically you do a mathematical calculation to find the standard deviation of a stock or index based on how much its price has moved up and down in the past.

So let's say IBM is trading at 50, and it has a standard deviation of 5. Using what I know about statistics I call tell you that for the next 30 days there is a 68.27% probability that IBM will stay between 45 and 55. I can also tell you that there is a 95.45% probability IBM will stay between 40 and 60. And that 99.73% of the time IBM will stay between 35 and 65.

Once I know the standard deviation I can determine a range of options that I would like to sell. I then look at the delta of the various options along with the credit I would receive from each one. I like to have a very high probability of success on my trades. So I will choose options about 1.5 standard deviations away from the current price. This puts my probability of success at 75-85% in most trades.

Pretty cool huh?

Do you think you could make more money, if you were right 75% of the time?

When I first learned that you could have such a high probability of success, I thought I had found the Holy Grail. But there is a catch. With less risk, there is also less reward. So on an Iron Condor trade you can only make about 10%. On a butterfly trade we aim for 20%. If you just buy options, you can double, triple, or more your money in a few days. But that is a very rare occurrence and the odds are against you. I'd rather be the casino letting people gamble and making money consistently month after month. Plus, 10% a month is not too shabby. Warren Buffet averages only 2% a month.

In our next lesson I will show you how we limit our risk. You might have heard that selling options is very risky. Not the way we do it.

Lesson 7 - Limiting Your Risk. In this lesson I will show you how to limit the risk on every option trade you do. I hate losing money. So every trade I out on has limited risk. I know what my maximum loss can be on every trade, and if the trade goes against me, I make adjustments to my position to protect my profit or myself from the maximum loss. Even with a 80% probability of success, you will still have 2 out of 10 trades go against you. I do not believe in putting on a trade and not protecting it.

Before I make a trade, I want to know what is the most I can lose, the most I can make, and when I need to adjust my trade to protect myself.

Figuring out the most I can make is easy. It's usually the amount of the credit we receive from selling our options.

Figuring out the most I can lose is easy too. I always limit my losses by buying options at the same time I sell them. Huh?

Let's say I want to sell a call option on IBM with a 50 strike price. For this option I will get 2.00 in credit. To limit my risk I buy an option further out of the money. In this case I can buy the 55 strike price option for a debit of 1.25.

Here's how it works. I sell one option at 2. I buy one 5 points away for 1.25. So my total credit is .75 (2-1.25). That is my max profit. To figure my max loss, I subtract .75 from 5 to get 4.25. (We bought the option 5 points away).

So if IBM stays below 50 we make the max profit. But what if IBM shoots up and goes to 60?

We would have to sell 100 shares of stock at $50. But we bought an option at 55, so we can buy 100 shares at $55. Plus we got .75 for each share so we would only lose $4.25 per share. Even if IBM goes to 300, we still only lose $4.25 a share.

In option terms, this is a called a spread. You sell one, and you buy one to limit your risk. You make less money because you have to spend some of your credit but less money made is a lot better than a whole lot lost.

But what about the adjustment?

Let's look at the Iron Condor trade. A lot of people lose money on these trades because they do them incorrectly. I have even heard option "experts" and newsletter writers advise clients to put on a condor trade and never touch it. If you lose, you lose.

Here is the problem with that thinking.

Let's say we do 10 condor trades, 1 a month for 10 months. Each has a 10% max profit and 80% probability of success. When we win, we make 10%, but when we lose we can lose 90%.

Let's look at the trade we discussed earlier on the RUT:

Sell 1 MAR 660 Call at $1.98 Buy 1 MAR 670 Call at $1.58 Sell 1 MAR 380 Put at $4.05 Buy 1 MAR 370 Put at $3.50 The total credit we received was 95 cents per option. Our maximum loss was $9.05 per option. So our max return would be 10.5%.

The total margin we have to put up for this trade is $1,000. If we win we will make $95. If we lose the max, we will lose $905.

So let's begin. We trade the RUT in this way for one month, and we win. We also win in the 2nd, 3rd, 4th, 5th, 6th, 7th, and 8th months. Wow, we are hot!

8 months of profit for about $100 each month gives us a profit of $800.

But then in month 9, we lose. And we don't adjust so we lose the max. -$900. Now we are in the hole $100. After nine months of work we are negative. That sucks. But wait, we are not done yet. In month 10, we lose again. We lose another $900. Ouch! Now we are down $1,000.

What happened? Even with an 80% probability of success we still lost a boatload of money. In this case 100% of our margin. Let's stay away from these Iron Condors, right?

If you don't know how to adjust, you should stay away from them. Because you will lose your shirt. And if you come across a newsletter or teacher that tells you not to adjust your condors, RUN away from them. Trust me, in the long run you will lose, unless you adjust.

Remember the RUT trade we revisited above. We made a profit on that trade. But only because we adjusted. If we had not adjusted we would have lost the max amount.

We need to treat our trading as a business. If you were running your own business would it be ok if you could lose your whole year's profits in one month? Hell no! You want profit every month. And if that's not possible then you want to keep your monthly loss to be about the same as the gain of an average month. So if you make 10% in a good month, you don't want to lose much more than 10% in a bad month.

To recap, we limit our max loss by using spreads. And we limit our losses even further by adjusting our trades. This works with all our trade strategies, the condors, butterflies, calendars, credit spreads, covered calls, and all the rest.

In our next lesson I will show you some of the trades we do and how we can make 10% a month.

Lesson 8- Sure, Steady, Reliable Monthly Income.

In this lesson I will give you examples of trades that make 10% in a month. It's possible and there are people, like me, doing it each and every month. You can either leave your profit in the account and let it grow, or withdraw it to live on. I like reliable monthly income

In previous lessons I already walked you through a real life Iron Condor trade that we did. Let's look at some others.

On November 11, 2008, SDS closed at 95.59. SDS has been trading in a range and is coming back from the bottom of the range. The closing price for the November 95 Call was $7.3. This option has ten days to expiration.

A covered call would work like this: We feel this ETF will continue to go up. So we buy 100 shares at $95.59 and sell 1, 95 Call at $7.3. If SDS is above 95 on expiration day, our option will be exercised and we will have to give away our 100 shares. But we will have a profit of $671.

100 shares at 95.59 = debit of $9559 option sold = credit of $730 100 shares sold at 95 = credit of $9500

9559-730-9500= profit of $671 in 10 days.

671 divided by 9559 = 7% return in 10 days.

We also do other types of trades such as butterflies, calendars, and credit spreads. Which strategy I choose depends on market conditions. When volatility is very high, it's great to do covered calls because you get more money for the calls. When volatility is medium we can do well with condors and butterflies. When volatility is in the low range I look at calendars for nice profits.

The Iron Condor is a staple though. This is a strategy we put on every month. That's the best way to make money with it. Every month, around a certain amount of days to expiration, we put on the trade and watch it. It's one strategy for reliable monthly income. Most months we win without any adjustments. Some months we have to make adjustments or else I just decide to get out with a small lose.

October 2008 was a wild time. Never before has volatility in the markets been so high. It was a dangerous time for all traders and it was a month that our strategies would not have worked very well because the market was moving too much. The DOW was up 500 points one day, down 900

points the next day. And so in October, we were lucky enough to stay out of the market. The market did not act "normal" in September and I decided to stay out in October.

How did I know? Well I watch the markets everyday. I stay on top of my trades. I talk to other professional traders and we share notes and thoughts on a regular basis. After you have been doing these trades for a while, you get a "feel" for the market. You know when something is not right. It's like driving your car. When you hear a new noise or the steering wheel doesn't respond they way it should, you know. So you stop the car to see what's wrong or you take it to the shop. In this game, we just stay out of the market until things gets better.

The good part is, things usually settle down in a few days. But in October things never settled down. But I want to make something clear. October was very, very different. It was something option traders and all traders for that matter, had never seen before. October was not a normal occurrence.

Steady, Reliable, Monthly Income

My style of trading is not for people who want to hit a grand slam and make a million dollars overnight. It's not for people who want to sit at the screen all day. It's not for those of you who are addicted to action. You won't have any stock picks to give away at parties. If you have to make trades everyday, this is not for you. It's also not for someone with multi-millions to invest.

The trades we do are designed to make a steady, consistent income. We want a few percentage points a month. At the end of the year our results are impressive, but look at any one month and they are not so flashy.

Some people ask me, if my system is so great, why don't people like Warren Buffet do these trades. Actually, he does. It is known that Warren is a seller of puts. But he does it for a different reason, and in a different way. He chooses a company that he wants to buy more stock in. Then he

decides on a price he would like to get in at. If there are Puts at that price, he will sell those Puts and get a credit.

If the stock price stays above his strike price, his options expire and he keeps the credit. Then sells more Puts. If the stock price drops to his strike price or lower, he buys the stock at that price - which is what he wanted to do anyway. Plus, he keeps the credit giving him a discount on the stock.

We don't want to buy stock, so we don't use that strategy. We want income and regular returns. Even though we can earn 10% a month, I would be happy with 5% a month. That's still 60% a year.

The reason Warren and his billionaire friends do not use our strategies is because they have too much money. If they tried to do our trades using a million dollars at once, they would mess up the trade. They would not get the right price from the market to make it worthwhile. They could do the trade with a couple hundred thousand. But 10% on 200,000 is only 20,000. And to someone with billions to invest, that is just not worth the time.

This is also the reason I limit memberships to my site. I don't want too many people doing the same trades or else it will mess it up for everyone, including me. That's why I don't just offer one trade a month, I try to offer 3 to 5. If a trade is too "crowded", you can wait a day or two to put it on, or you can just wait for the next trade.

You don't have to do every trade I release.

By limiting the number of subscribers and by choosing liquid trades I make sure that everyone who wants to put on the trade can.

Very large traders do these trades as well. But why would they advertise or teach others how to do it? If you could do what other people think is impossible, would you teach others? Probably not. If too many people start doing these trades, it can ruin it for everyone.

In our next lesson I will show you why what we do is relatively new and why many people don't know about it.

Lesson 9 - We Couldn't Do This A Couple Years Ago.

Up until recently only market makers and very large traders could do these trades. The reason: commissions. As soon as three to four years ago you would have to pay $30-$40 to buy or sell a single option. Now you can to the same trade for less than $1. Online trading and lower commissions have allowed regular people like you and me the opportunity to trade for a living.

Market makers are the guys or companies that keep stocks liquid. Their job is to buy and sell the stock all day so everyone gets their orders filled. They are the ones that get to keep the spread between the ask and the bid prices.

The current trend is moving more and more to electronic trading. Computers are the new market makers. And this has lowered the cost of trading. Commissions that used to be $30 per option are now $1 or less per option traded. Before, it only made sense for the big boys to do these trades. Now us little guys can do them too.

Not only that, but brokers are now giving away trading tools that used to cost thousands of dollars to buy and use. For example, my broker gives

free live quotes and free live charts to every account. Fidelity doesn't even do this yet. And Fidelity is still charging about $10 per option.

If you are serious about option trading, you need to get a broker that specializes in options. I call these options friendly brokers. There are several out there. If you are paying more than $2 per option, you are paying too much.

This concludes our 9 Lessons of Option Selling. I would love to hear your thoughts on this course. What did you like, what did you not like, are there any questions you have, was anything unclear? Just drop me an email. Ph: 1300 852 024 | Fax: 1300 852 026 Mobile: 0419 503 211 Email: info@citadelmarkets.com

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