Option Investor

Changes to the Monthly Cash Machine

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We are making a few changes to how the Monthly Cash Machine works to make it easier for everyone to follow. The main difference is that we are going to have 1/2 of our capital at work each month so that we can reduce our risk and capture an extra weeks worth of additional premium.

The following strategy is effective immediately. Expect to see new October Expiration trades rolled out next week.

The basic strategy applied by the monthly cash machine is as follows:

1. We will recommend between 6-8 "credit spread plays" during the month, which will be called THE RECOMMENDED SPREAD LIST. The NUMBER OF POSITIONS, IN THE RECOMMENDED SPREAD LIST, are based on a portfolio with a $35,000 minimum equity value, which can be in either the form of cash or marginable securities. (Please note that depending on your brokerage, the minimum maintenance required can vary.)

2. This RECOMMENDED spread List will be made up of either put credit spreads or call credit spreads and may include one of more index option credit spreads as well.

3. These spreads should generate $2,000 - $2,500 in premium per month based on 10 contract-spread positions.


Buy 10 ABC July 30 Calls to OPEN (cost $.25)

Sell 10 ABC July 25 Calls to OPEN (credit of $.90)

Receive a NET CREDIT of $0.65

4. Our goal is to select spreads far enough out of the money where both sides of the spread will expire worthless and we will net the credit received for each trade. As a profit.

5. We will keep you advised as to the disposition of each of the positions and inform you of any changes or adjustments that we need to make in regards to any position that potentially could be a loss. (And yes we do have some losses from them time to time). While no system guarantees 100% winners each trade. We believe that collecting premiums at the expense of the option buyers who are looking for the homeruns, will net us continuous cash flow profit over the long term.

6. We are looking to be profitable on 80% - 95% of our trades and keep our losses to a 2-1 or 3-1-risk/reward loss ratio. In other words, if we were to lose 2 out of 10 trades, with either 2-1 or 3-1 loss ratio, we should still be profitable month to month.

7. In addition, we will be offering a series of "Supplemental" spreads that you may also utilize. However, these "Supplemental Spreads" will not be followed in detail and should be viewed as just what they are "Supplemental" spreads used on a discretionary basis, based on your own individual risk tolerance and interest.

8. Our recommended plays will be issued around the last week of the current expiration period (or roughly with 5 weeks of time remaining until expiration). So as an example, the October spreads will be issued around the week of the 12th of September.

9. A total of 4-6 positions will usually be issued initially, with the remaining recommendations issued a couple of days shortly afterward. However, all 6-8 positions may be issued at once, based on varying market conditions of the individual issues involved or the overall condition or market direction itself.

10. Remember this is a conservative strategy in which we are attempting to generate income, consistent income; on a repetitive basis, this is by no means a get rich quick strategy.

11. To repeat our goal here is to average $2,000 - $2,500 a month in income from the option premiums we net out from our spreads by being sellers of positions that are out of the money. In actuality, we don't have to be right, but only either somewhat right or even only somewhat wrong, and we should still be profitable. A side ways moving market is just as effective for our strategy as a market move in our direction. The ultimate goal is the same. We want the positions to expire worthless at expiration time.

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