3K monthly income on a 100K account

Discussion in 'Options' started by aibanez, Jun 21, 2014.

  1. aibanez


    Hi everybody, after almost 3 years of studying and paracticing on a PM account, I'm trading stocks and options with real money for 5 years now and I made money consistantly, my ROIs are from 5% (worst) to 18%(best) per year.
    Here in ET there are many experienced traders (to whom I respect very much) and I come to you in order to take some ideas from you.
    My account is now around 100K and I want to generate a monthly income of 3K or so, do you think that is posssible? What kind of strategies do you recommend to achieve that?
    I'm mostly using covered calls, vertical credit spreads, sometimes collar trades, sometimes naked puts (on stocks I want to own), some Iron Condors on indices, but in ths low volatility environment is very difficult to capture good premiums.
    Any suggestions/comments are very welcome
    Thx in advance!

    PD- Sorry for my bad english :)
  2. You have 5 years of data ......look at what you were trading when you made 5% and what you were trading when you made 18%. Then look at the volatility . If volatility is high, 3%. a month is do able....but in historic low vols not without unacceptable risk, in my opinion. You must be very selective and patient. There are very small windows of opportunity when we have a down day or just before earnings then take your shot. Volatility will return and you will have the cash on hand to do something. What your doing now is fine...there really isn't any magic to it.
  3. xandman


    $3K or 3% per month is very possible on short option strategies alone. The problem is that if vol pops, you could loose 15-30% of your capital in that same month.

    Consider doing long delta, gamma strategies also. With that balance comes decreased premium aka "juice" and a likely increase in pnl volatility but you should also be able to put more of your capital at risk.
  4. Do the Math

    Your historical returns = 5-18%/annually

    $100K / $3K (monthly) = 3% /month

    3% x 12 = 36%

    36% > 18%
  5. TskTsk


    3% (3K/100K) per month is 36% per year. More than what even the top hedgefunds make.

    And if you do short vol, you sure as hell won't capture 3% "per month". More like 3% averaged over 1000000 samples with occasional drawdowns in the 30-40 % range...your equity curve will never be a straight upwards line.
  6. aibanez


    Thank you for your replies, and of course I want to do more than 18% (I've done the math).
    What if doing covered calls (ATM or slightly OTM) on 5 or 6 solid stocks and using margin, my broker allows 4x of margin on stocks, why not to use that? if the interest on margin is very low? and if something bad happens, convert the trades in collars.
    I'm thinking in stocks like MSFT, DIS, AAPL, or maybe some indexes? I'm doing the math and with that strategy you can be very close o that 3% of cash flow generation.
    Is my first shot on that I'm only thinking out loud!
  7. Is it possible to get $3k per month on a 100K account?

    For how long? and with what probability of a disaster ?

    You are asking the wrong questions.

    Dillinger made a good living until the FBI put a bullet in the back of his neck.


    As you raise the risk you take, you raise your return... but if you raise your risk too high you will eventually take a bullet in the neck and it will be all over.

    I believe it is possible to make about 15% a year with fairly conservative strategies that do not carry too much risk of disaster. Most people would say even 15% annualized requires too much systemic risk and 6% or so is more likely. 15% on 100K would give you $15,000 yearly or $1250 a month. While I think that is doable it will not be even every month and there will be losing months and the old bullet in the neck is always a possibility.

    If you move towards higher return your disaster risk will rise faster then your income making your expectation be actually less. (its important to understand this).

    If you move towards safer strategies your income will decrease but your expectation may actually go up because the probability of a disaster will decrease.

    Of course the market makes some people rich every day and others poor... the difference between the two is as much chance as anything else.

    The market doesn't pay you money for nothing. It pays you to offload risk. No riski no money. Every day is just an argument over how much risk vs. how much return. You can't win that argument every day, day in and day out.
  8. so do traders on average make only 20% a year????
    What is a traders average yearly return?

    I hear some traders making 300% return a year, but then I see this thread and reminded that hedge funds would love you if you can give them a 15% a year.......
  9. 300% on any CONSISTENT basis is nonsense.

    Let me show you the kind of trade that gets you the 6% I have above.

    I think this is the safest trade available today:

    iShares 20+ Year Treasury Bond (TLT):

    Lets look at the lifetime trading history of TLT:


    On Friday TLT closed at 111.80

    The Jan '16 85/80 bull put spread closed with a NBBO bid/ask of 22/67

    I believe I can get .45 on that trade. The yield on that trade is then 45/455 = 9.89% in 572 days or 6.3% annualized.

    Given the distribution of TLT prices OptionsXpress calculates the Probability of this trade closing with TLT above 85 at 99%

    Thus a quick estimate of the expectation for the trade is :
    .99(45) - .01(455) = 44.55 - 4.55 = 40 for an expected yield of 40/455 = 8.79% in the same 572 days or 5.6% annualized.

    You can make this trade repeatedly over time (redoing the calculations) and expect to get the same return.

    Anything you do to that trade to increase the yield will raise the risk and decrease the probability of success... and alter the expectation.

    If you can predict the future you can make other bets but eventually your prediction will be wrong and you will have a very bad day.

    (in the above I am ignoring the small but real risk of Janet Yellen and company accelerating 'tapering' and allowing interest rates to suddenly climb. She won't do that)
  10. Rimping


    3% per month on average year after year is almost impossible. It would amount to 42.58% per year not 36% (can't these elitetraders even perform the basic calculations?)
    Who could ever make such returns year after year?
    #10     Jun 22, 2014