Optimizing Your Options Trading Strategy for Monthly Profits

As an experienced options trader, I've explored various strategies to achieve a steady monthly profit. Over the past 26 months, I've accumulated a substantial profit of $500,000, primarily through methods such as Vanna Volga spreads and Cash Secured Puts (CSPs). Despite experimenting with multiple strategies, one approach has proved particularly reliable: the wheel strategy and CSPs.

In my trading routine, I typically manage over 10 contracts per week, while only engaging a small fraction of my capital in each trade. I carefully select stocks with high volatility, such as SOXL, TSLL, TQQQ, among others, and recently have been using MSTR. My strategy involves placing trades at a strike price that is slightly below in-the-money. For instances where the stock price falls, I prefer to roll the contract to the following week, sometimes even further depending on the circumstances.

A Safer Approach: The Covered Call Strategy

To aim for a more subdued but safer approach, a covered call strategy on blue-chip stocks with low volatility might be beneficial. This involves selling call options on stocks you already own, effectively serving as a hedge. This strategy offers a high win probability and limited risk in terms of unlimited loss.

So, what exactly are we aiming for in this safest strategy?

High Probability and Limited Loss

The safest strategy here refers to a high win probability and limited risk. Many seasoned traders advocate that option sellers consistently make money. The most common strategy utilized by these sellers is the short strangle. However, I will introduce a new layer to this strategy. Even though short strangles have a relatively high win probability, they still leave room for sudden market movements leading to significant losses.

Iron Condor and Iron Butterfly: A Balanced Approach

To mitigate the risks associated with short strangles, we can implement a more balanced strategy combining the Iron Condor and Iron Butterfly. This approach offers a more optimal reward-to-risk ratio while maintaining a high win probability.

The process involves the following steps:

Iron Condor Setup: Create a short straddle at a point 400 points away from the current market price. Hedge this by purchasing strikes at 450 points away from the market price, completing the Iron Condor setup. Iron Butterfly Setup: Identify the max pain point (the strike with the highest sum Open Interest of both calls and puts). Sell call and put options at this strike. Then, buy immediate adjacent or two-level strikes within the straddle range to create the Iron Butterfly.

For a clearer example, let's assume Nifty trading at 13250. Here's how you would construct these setups:

Iron Condor: Sell 12850 PE and 13650 CE. Buy 12800 PE and 13700 PE. Iron Butterfly: Say max pain is at 13200. Sell 13200 PE and 13200 CE. Buy 13150/13100 PE and 13250/13300 CE.

The resulting pay-off graph for this setup would look like this. This strategy promises a high win probability and a balanced reward-to-risk ratio, making it a viable option for consistent monthly profits.

Conclusion

With the right strategy, you can consistently achieve your targets in options trading. The Iron Condor and Iron Butterfly approach provides a safer and more balanced way to manage risks, ensuring a high win probability and a favorable reward-to-risk ratio. This method is not only accessible to seasoned traders but also to those new to the game.

By following this balanced approach, you can achieve stable monthly profits in the options trading market.