Today we started actual trading in the Monthly Income Portfolio through Thinkorswim trading. The trading is in real time with actual market prices and commissions. The rules are as following for this trading portfolio:
- Enter positions by selling puts to collect the option premium. We will not sell a put unless we have the capital to cover the stock if exercised and we are forced to purchase the stock;
- If we are put the stock, we will sell covered calls to earn more premium from the stock. If the covered call is exercised, we will let the stock get called away from us. Then, we have a decision to go back to selling puts to re-enter the position;
- We will take the gains from the monthly income and invest in monthly dividend stocks on a monthly basis. This creates a safer method to earn monthly dividends to protect our capital while earning monthly income;
- The portfolio will maintain a cash level of 10% in case of trade adjustments as needed.
As rules indicate, we enter positions by selling puts to collect the premium income. We have selected 5 stocks to sell July 2011 expiration puts on: BX, COH, UA, POT and CMI. The total put premiums collected is $4530.00 (see graphic below) for the next 30 days. This is a 4.53% return on the initial starting balance of $100,000. We will monitor these puts to see how the positions play out over the next month. If these options are put to us, then we will sell August 2011 calls on the shares we own. If option is not exercised, we will sell more puts for premium in August 2011.
