The Monthly Income Portfolio

n the past we discussed how to create a monthly income portfolio using puts, covered calls and monthly income dividend stocks.  Now, we have teamed with TradeMonster to create a paper trading account so you can follow the trades we place each month in this account.  

The account has $100,000 in cash and can trade $200,000 in total through margin. The basic rules of trading in this account are:

  • 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.

This is the easiest method to learn how to create a monthly income portfolio.  We will track the performance of the portfolio on a regular basis.  The majority of trades will occur around option expiration and the following week.  We will look to trade the monthly options on the puts and covered call strategies.

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We will begin trading near the May 2011 option expiration date.  The goal of the trading account is to create a monthly income that can compound over time.  Your goal is to learn how this is done so you can create your own monthly income portfolio.  This portfolio can be created with a much lower capital than $100K.  You will just need to adjust the number of option contracts per trade to the amount of capital in your account.

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