How do I earn >$67K per year with Options for Income?
I now understand how to make small, steady profits with OFI. How do I ramp up to big, steady profits?
(Jim is not a registered investment adviser and consequently cannot provide personalized investment advice, which includes position sizing.)
You now know that the secret to OFI’s amazing rate of return is that members regularly place small, low-risk trades that have a high probability of success. If you decide that you’ll trade one contract for every trade that Jim recommends, do that consistently (don’t cherry-pick). If you decide you’re comfortable with five contracts per recommendation, or ten, stick to that plan. When you evenly weight your options portfolio based on many different underlying stocks, the math works out so that by following the OFI program of new trades and rolls you’ll have many more winners than losers.
The key to increasing your steady profits it to ramp up the number of contracts you consistently place per trade. To do that, you’ll need to increase the balance in your margin account.
Each 5-point contract requires $500 plus commissions in your margin account. If you plan to trade one contract for each trade alert that Jim sends, you’ll soon have upwards of 40 live positions (some new, some middle-aged, and some near expiration) working for you. At that one-contract position size per trade, you would need around 40 x $500 = $20,000 in your margin account which, based on OFI’s historical performance, could potentially earn up to $6,700 per year (i.e., upwards of a 33.5% rate of return). Personal results have often varied from this figure, especially if you don’t follow Jim’s trading instructions precisely and/or don’t make all of the trades in equal position sizes.
Many current members prefer to keep $25-30,000 in the account to be able to participate in all roll recommendations during severe market downturns, which often include spread widenings and sometimes require a debit to complete. If you’re able to fund more contracts at a time, your income rises — for example, at the ten-contract level with $200,000 in your account you could possibly earn upwards of $67,000 per year based on the OFI historical track record. Past performance, of course, is no guarantee of future results.
Several OFI members have posted their personal position-sizing rules in the Stock Talk forum. For example, one experienced OFI member has stated that he can have about 40 spread positions open simultaneously, and he keeps about 25% of his account in cash. Assuming 25% cash, that leaves 75% for option positions. Dividing 75% by 40 open positions yields a cash allocation per position of 1.9% each (75/40).