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Disclaimer

As an investor, you know that any kind of investment opportunity has its risks. There is no such thing as low risk stocks or options trades, and we recommend you invest wisely. Investing in stocks and options is highly speculative. All of the content on our website, in or newsletter, and in our email alerts is for informational purposes only, and should not be construed as an offer, or solicitation of an offer, to buy or sell securities. Remember, you should always consult with a licensed securities professional before purchasing or selling securities of companies profiled or discussed in the Gamma One newsletter.

Brian Dunn, Black Elm Advisers LLC founder, is a Registered Investment Adviser. Gamma One and Black Elm Advisers LLC are not affiliated companies and the content contained in Gamma One is not endorsed by Black Elm Advisers LLC. Black Elm Advisers LLC has advertising and marketing arrangements with parties that are not registered or regulated as broker-dealers, such as Gamma One, and as part of these arrangements; Black Elm Advisers LLC may pay fees or provide other forms of compensation in exchange for marketing.

Brian and his team may have a financial interest in Gamma One’s picks as they trade many of the same equities and options they select.

Brian Dunn and Gamma One (Company) is not an investment advisory service, nor a registered investment advisor or broker-dealer and does not purport to tell or suggest which securities or options customers should buy or sell for themselves.

It should not be assumed that the methods, techniques, or indicators developed at Gamma One will be profitable or that they will not result in losses. nor should it be assumed that future picks will be profitable or will equal past performance.

RISK DISCLOSURE: Options involve substantial risk and are not suitable for all investors. Please read "Characteristics and Risks of Standardized Options" prior to investing in options. Evaluate any strategy prior to use to understand risk and suitability.

Futures and forex trading contains substantial risk and is not for every investor. An investor could potentially lose all or more than the initial investment. Risk capital is money that can be lost without jeopardizing ones’ financial security or life style. Only risk capital should be used for trading and only those with sufficient risk capital should consider trading. Past performance is not necessarily indicative of future results.

Option Selling for Income Strategy

Performance

YearAnnualized ReturnAnnualized, Since Inception (2009)Value of $10,000 Invested 1-Jan 2009S&P 500 Return with Dividends Reinvested
Through April 20244.97% Actual Return to Date21.30%$125,651TBD
202335.81%21.44%$119,70626.29%
2022-2.98%20.42%$88,146-18.11%
202131.81%22.22%$90,84928.71%
2020-23.35%21.42%$68,92518.40%
201964.25%25.49%$89,92131.49%
2018-34.39%21.61%$54,746-4.38%
201728.33%27.83%$83,44221.83%
201614.81%27.77%$65,02211.96%
2015-4.40%29.62%$56,6341.38%
201429.25%35.29%$59,24113.69%
201342.14%36.50%$45,83432.39%
201252.42%35.09%$32,24616.00%
20118.13%29.31%$21,1562.11%
201037.30%39.90%$19,56515.06%
200942.50%42.50%$14,25026.46%
*Unaudited results. Past performance is no guarantee of future results. Review the disclaimer for details. S&P 500 returns with dividends reinvested provided for comparison. Source https://www.slickcharts.com/sp500/returns/details.

How to Sell Options for Income

Selling puts and calls is an options trading strategy often used by investors to generate income. This approach is sometimes referred to as the “Wheel Strategy” or “Triple Income Strategy.” It is a combination of selling put options, getting assigned the underlying asset if the option is exercised, and then selling call options against the shares you own.

A Multi-Step Process That Can Be Repeated for Consistent Income Generation

1. Sell Put Options

You begin by selling (or writing) a cash-secured put option on a stock that you are willing to own at a lower price. By selling the put, you receive the premium, which is the income in this step. If the stock price remains above the strike price at expiration, the put option expires worthless, and you keep the premium.

2. Assignment and Purchase of Shares

If the stock price falls below the strike price at expiration, the put option will likely be exercised, and you will be assigned to buy the shares at the strike price. Since you sold a cash-secured put, you already have the cash set aside to purchase the shares.
Option Sales Income Strategy - Put Selection

3. Sell Call Options

Once you own the shares, you can sell (or write) a covered call option against your stock position. This involves selling a call option with a strike price higher than your purchase price. You receive the premium from selling the call, which is the income in this step.

4. Possible Scenarios at Expiration

a) If the stock price remains below the call option’s strike price at expiration, the call option expires worthless, and you keep the premium. You can then repeat the process by selling another call option against your shares.

b) If the stock price rises above the call option’s strike price at expiration, the call option will likely be exercised, and you will be required to sell your shares at the strike price. In this scenario, you will have made a profit from the difference between the stock’s purchase price and the call option’s strike price, plus the premiums received from selling the put and call options.

5. Repeat the Process

If your shares are called away, you can start the process again by selling a new cash-secured put option on the same or a different stock.

This strategy is best suited for investors who are comfortable with owning the underlying stock and have a neutral to slightly bullish outlook on its price movement. The primary risk comes from potential losses if the stock price declines significantly or if the stock price rises too rapidly, limiting your upside potential.

My version of this strategy involves focusing on selected ETFs instead of individual stocks and a proprietary method for selecting the strike prices of the options sold.

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