Option Income Strategies

Overview/Survey

Raleigh-Durham Traders Meetup

1/11/2017
Copyright © 2017 Don Brady
Note: I have included very brief excerpts of summaries and charts of various strategies
from previously published, publicly available materials of the original authors, giving
proper credit to them. These brief excerpts are intended just to give the flavor of
different strategies and are definitely not intended to, nor are they sufficient to, teach or
use these methods. For those purposes, please contact the original author or publisher.
I believe that so doing is proper, and will be welcomed by authors, but if any system
developer or publisher objects, please contact me at [email protected] and I will
attempt to accommodate them via a correction.
 Strategies
• John Locke: M3
• Dan Harvey: Road Trip
• Jim Riggio: Kevlar
• Andrew Falde: Net-Zero-Delta (50-40-20)
• Amy Meissner (orig. Dan Harvey): Weirdor
• Matt Williamson: FruitFly
• John Locke: Bearish Butterfly / M9
• John Locke: Super Simple Spreads
• Bruno Voisin: Rhino
 Free Learning Venues: Capital
Discussions
• Roundtable moderated by Tom Nunamaker
• Market Muse
• Trading Group 2
• Library of Prior Videos (PDF’s are $10 / month)
• Big Draws are Dan Harvey, Jim Riggio, others
• https://capitaldiscussions.com/
 Free Learning Venues:
SMB Options Tribe
• Free only if watched Live
• Big Draws: John Locke, Andrew Falde, others
• Huge Library of Prior Talks ($30 / month but
you can have free trial)
• SMB also offers Courses and Mentoring
• http://optionstribe.com/
 Free Learning Venues:
John Locke Weekly Update
• Free only if watched Live, (also free with 2
week delay on YouTube)
• He goes over his major systems trade status
every Monday and you can ask questions
• Huge Library of Prior Talks ($30 / month but
you can have free trial)
• SMB also offers Courses and Mentoring
 Key Common Concepts
• Vertical Spreads
• Credit Spread and Debit Spread
• Butterfly
 Brokers
• Think Or Swim (TD Ameritrade) has great
analysis and backtesting platform
• Interactive Brokers has lowest rates, especially
for Futures Options
• Others
 Options Platforms
• ThinkOrSwim is free!
• Current leader among paid products (but
$100/month): OptionVue
• Runner up: OptionNetExplorer – much faster,
cheaper, no futures options yet.
• Special hidden offers exist for both – ask on
forums!
• Others
 Simplified Terminology for Beginners
• Butterfly – two stacked vertical spreads
• Theta – ongoing dollar gain per day
• Negative Delta – gain if the market falls
• Negative Vega – gain if volatility falls
 Locke M3

https://www.youtube.com/watch?v=VX9qsths0pA&t=1333s
 M3 Delta Adjustment Points

https://www.youtube.com/watch?v=VX9qsths0pA&t=1333s
 LOCKE M3 RESULTS
Strategy M3

Avg. (2011-2016) 55.38%

2016 48.60%
2015 65.30%
2014 89.20%
2013 22.20%
2012 51.60%
2011 (M9) N/A
https://www.lockeinyoursuccess.com/weekly-market-and-position-update/
 Road Trip Trade

http://f1.capitaldiscussions.com/2/2016/11/20161110-Ryan-Road-Trip-Trade-Presentation.pdf
 Road Trip Trade Adjustments(partial)

• If the market moves up, lift the right side by

moving in the upside long (“Reverse Harvey”)

• Or, add a mini butterfly position

• If it moves down, buy a put debit spread (may

use a conditional order)

• Add Layers
 Road Trip Trade

http://f1.capitaldiscussions.com/2/2016/11/20161110-Ryan-Road-Trip-Trade-Presentation.pdf
 Road Trip Alert Service Results – SPX
• Mar 2016 0.63%
• Apr 2016 1.08%
• May 2016 2.09%
• Jun 2016 3.53%
• Jul 2016 0.58%
• Aug 2016 -0.46%
• Sep 2016 2.27%
• Oct 2016 1.27%
• Nov 2016 2.46%
• Dec 2016 0.86%
• Total for 10 Months 14.31% Average 1.43%
http://roadtriptrade.com/
 Road Trip Ryan Simmen Results (SPX)

http://f1.capitaldiscussions.com/2/2016/11/20161110-Ryan-Road-Trip-Trade-Presentation.pdf
 M3 vs the Road Trip Trade

• “The Road Trip Trade (RTT) is essentially a

Broken Wing Butterfly (BWB) with a no roll
risk off adjustment strategy.”
• The RTT up adjustment strategy is a risk off
adjustment strategy by rolling in the upper
long put.

https://www.lockeinyoursuccess.com/the-m3-vs-the-road-trip-trade/
 Jim Riggio’s Kevlar
• Two Entry Modes:
• Mode 1: (for low vol. and steep put skew)
Symmetrical butterfly below the money
plus in the money call
• Mode 2: (for high vol. and normal or flat put
skew) Put BWB below the money
• Enter 40 to 80 DTE

https://www.youtube.com/watch?v=zk2ZlrbZso8

http://kevlartrade.com/
 Jim Riggio’s Kevlar

https://www.youtube.com/watch?v=zk2ZlrbZso8

http://kevlartrade.com/
 Jim Riggio’s Kevlar
Trade Yield on
Expiration Planned Capital
Dec-2015 7.58%
Jan-2016 9.07%
Feb-2016 5.68%
Mar-2016 7.53%
Apr-2016 1.19%
May-2016 5.89%
Jun-2016 11.00%
Jul-2016 10.10%
Aug-2016 1.11%
Sep-2016 5.15%
Oct-2016 11.20%
Nov-2016 10.49%
Total for 12 Trades 85.99%
Average 7.17%

https://www.youtube.com/watch?v=zk2ZlrbZso8
http://kevlartrade.com/
 Weirdor Trade Results 23 Months
(Amy Meissner)

http://a.capitaldiscussions.com/amy-meissner-trade-alerts-weirdor-strategy/
Weirdor (aka Jeep) – Amy Meissner

http://a.capitaldiscussions.com/amy-meissner-trade-alerts-weirdor-strategy/
http://optionstribe.com/2015/07/
 Weirdor – Amy Meissner
• Put Credit Spread (20 point spreads)
• Put Debit Spread
• Call Credit Spread
• Far OTM Put
• 40-50 DTE
• Add Put Debit Spread if moves down, using
conditional order
• Exit 14 DTE
• Use tranches
http://a.capitaldiscussions.com/amy-meissner-trade-alerts-weirdor-strategy/
http://optionstribe.com/2015/07/
 Falde Net-Zero Delta (60-40-20)

http://optionstribe.com/category/by-contributor/andrew-falde/ (get free trial)

http://www.smbtraining.com/blog/options-strategy-workshops
 Falde Net-Zero Delta (60-40-20)

http://optionstribe.com/category/by-contributor/andrew-falde/ (get free trial)

http://www.smbtraining.com/blog/options-strategy-workshops
 Falde Net-Zero Delta (60-40-20)
• Start as close to 60-40-20 as possible
• Split or Adjust Strikes to get close to 0 Delta
• Use First Available Contract with 60 Days left
• Exit, and Reenter, if short strikes Delta changes up
or down by 20% from original value
• Maintain Overall Stop Losses of 2% and 5%
• If more conservative trade (like Road Trip), can
50-30-10
• More aggressively bearish, use 80-50-20. For less
upside risk, can use 50-40-30
• Pair with other complementary strategies

http://optionstribe.com/category/by-contributor/andrew-falde/ (get free trial)

http://www.smbtraining.com/blog/options-strategy-workshops
Matt Williamson FruitFly Compared to
Road Trip
• “Make Money Faster”
• Under 40 Days instead of 70 Days
• To keep margin the same, move the lower leg
down another 10 points and cut contracts in
half
• Fully Objective

https://www.youtube.com/watch?v=ShHj1CgG0dI
 Matt Williamson FruitFly Results
• 2012: 75.2%
• 2013: 67.2%
• 2014: (25.1%)
• 2015: 80.9%
• 2016: 87.6%

https://www.youtube.com/watch?v=ShHj1CgG0dI
 Matt Williamson FruitFly Metrics
• Important Metrics:
• ● Underlying: SPX
• ● Trade Category: Butterfly
• ● Planned Capital: $4,000 per lot
• ● Profit Target: 5%
• ● Stop Loss Flexible (based on structure)
• ● Win/Loss Ratio 6:1
• ● Average win 4.3%
• ● Average loss 7.2%
• ● Per-Trade Expectancy 2.6%
• ● Annual Expectancy* 63.3% based on 15-day average
trade cycle
https://www.youtube.com/watch?v=ShHj1CgG0dI
 FruitFly Entry
• ● Underlying: SPX
• ● DTE: 30-35 (can go down to 20-25 during higher vol)
• ● Conditions: None (always in the market)
• ● Action: Buy to Open a broken-wing butterfly, as follows:
• ○ Upper wing ATM (or 5 points ITM)
• ○ Overall wing width no less than 80 (100+ preferred)
• ○ Lower wing width - upper wing width = 20
• ○ Entry price less than $2.50 per fly
• Upon entering, note your starting theta value at the current price
(with a $0.00 P/L),
• rounded down to the nearest multiple of entry lot size (e.g. for a
starting lot size of 12
• and a theta value of 129, your theta trigger would be 120)
 FruitFly Exits
• Exit at profit target ($200 per lot)
• Exit if T+0 is below the expiration line (not
break-even point) to the downside
• Exit if a needed adjustment would exceed
planned capital
 FruitFly Adjustments (partial)
• If Theta falls below the rounded starting theta
value: ● Roll enough short strikes up by no
more than 10 points to bring current theta
back over threshold. (Rolling all shorts up 10
points will max out planned capital
• If Delta becomes “greater” than -5 per lot to
the upside: ● Roll enough short strikes up 5 or
10 points to bring delta back “below” -5 per
lot
 Bruno Voisin Rhino Strategy
• Enter at about 70 days to expiration
• Uses a combination of BWB, Call Calendars,
and Call BWB’s
• Starts with 5 40/50 Put BWB’s with upper
long 5 to 15 points in the money
• Adds butterflies or Call Calendar Spreads to
maintain delta neutrality

https://www.youtube.com/watch?v=NBp8zzdrnXo
http://a.capitaldiscussions.com/rhino-trade-alerts/
Bruno Voisin Rhino Strategy
 Bruno Voisin Rhino Strategy
Yield on Yield on Yield on Yield on
Trade Trade
Planned Maximum Planned Maximum
Expiration Expiration
Capital Capital Capital Capital
Jan-2016 3.05% 8.78%
May-2015 6.71% 7.34%
Feb-2016 0.55% 1.69%
Jun-2015 5.83% 5.37% Mar-2016 -3.78% -10.85%
Jun-2015 6.93% 6.66% Apr-2016 0.35% 0.73%
Jul-2015 5.79% 5.96% Apr-2016 0.14% 0.55%
Jul-2015 4.87% 5.54% May-2016 4.26% 11.43%
Aug-2015 1.04% 1.21% May-2016 5.62% 7.98%
Jun-2016 0.42% 0.32%
Aug-2015 3.64% 5.36%
Aug-2016 2.90% 2.72%
Sep-2015 3.19% 6.65%
Sep-2016 5.45% 5.12%
Oct-2015 1.58% 6.08% Oct-2016 11.22% 21.20%
Nov-2015 3.55% 4.02% Oct-2016 11.06% 12.75%
Dec-2015 3.55% 4.02% Nov-2016 6.57% 8.78%
Nov-2016 5.02% 7.30%
Average 3.98% 5.47%
 LOCKE Super Simple Spreads RESULTS
Strategy SSS – V Condor

Avg (2011-2016) 36.58%

2016 6.00%
2015 41.40%
2014 23.30%
2013 75.60%
2012 N/A
2011 N/A
https://www.lockeinyoursuccess.com/weekly-market-and-position-update/
 LOCKE Super Simple Spreads /
THE BULL
• Entry 65 DTE
• Exit 30-37 DTE
• Sell 30 pt Bull Put Vertical at 10 delta
• Stop Loss $250 – when occurs, exit and wait
for next month entry

https://www.lockeinyoursuccess.com/programs/super-simple-spreads/
 LOCKE Super Simple Spreads /
THE BULL
• Entry 65 DTE
• Exit 30-37 DTE
• Sell 30 pt Bull Put Vertical at 10 delta
• Stop Loss $250 – when occurs, exit and wait
for next month entry

https://www.lockeinyoursuccess.com/programs/super-simple-spreads/
LOCKE Super Simple Spreads – The Bull

https://www.lockeinyoursuccess.com/programs/super-simple-spreads/
 LOCKE Super Simple Spreads /
V CONDOR

• Based on Iron Condor

• Embedded Straddle reduces drawdowns on
large moves
• Includes simple Filter

https://www.lockeinyoursuccess.com/programs/super-simple-spreads/
 LOCKE Super Simple Spreads /
V CONDOR

https://www.lockeinyoursuccess.com/programs/super-simple-spreads/
 Risk
• Are these like traditional “Income Strategies”
in terms of Suitability
• Down 50% requires up 100% to get even
• Down 80% requires up 500% (Evan Rothschild)
• Black Swans
• Are you liable for Deficit after Loss?
Copyright 2015 Evan Rothschild
Copyright 2015 Evan Rothschild
Copyright 2015 Evan Rothschild
 “Look for a 25 point wide put credit spread in SPX,
which will give you at least $1 credit (sell 10 of
these); typically at around -6 delta, using the
0/25/50/75/100 strikes”
 “Go out to 1 std dev (around -16 delta) and buy a 25
point wide put debit spread in SPX (buy around 4 of
these), using the 0/25/50/75/100 strikes 4. “
 “Confirm that your position deltas are slightly
negative (around -1 to -3 deltas per tranche), using
TOS volatility smile “
 “Confirm that your T+0 crosses the zero line behind
the upmost long put”
 “Upside risk should ideally be 2% to 3% of the max
RegT risk (max of 5%); trade starts with a small
debit”

https://www.youtube.com/watch?v=LD9C0Fy4_hU