Options – Trading for Income Course Notes:

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Phase 1: Foundations of Options Trading

Lesson Notes

• What is an Option?
  • Call option = right to buy stock at a strike price before expiration.
  • Put option = right to sell stock at a strike price before expiration.
  • Each option contract controls 100 shares.
• Key Terminology
  • Strike price = agreed price to buy/sell stock.
  • Expiration date = last day the option is valid.
  • Premium = price paid/received for the option.
  • In/At/Out of the Money (ITM, ATM, OTM) = whether the strike price is favourable.
• Option Pricing Basics
  • Two components: Intrinsic Value (real value) + Extrinsic Value (time value).
  • Time decay (Theta): option loses value daily.
  • Volatility (Vega): higher volatility = higher premiums.

• End of Phase 1: Students should be able to read an option chain and understand what each part means.

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Phase 2: Beginner Strategies – Income & Protection

Lesson Notes

• Buying Calls & Puts
  • Calls = bullish bet.
  • Puts = bearish bet.
  • High risk, limited use for beginners.
• Covered Calls
  • Own 100 shares → sell a call.
  • Collect premium for agreeing to sell shares if stock rises.
  • Generates steady income.
• Cash-Secured Puts
  • Sell a put with cash set aside to buy stock if assigned.
  • Either collect income or buy stock at discount.
• Protective Puts
  • Buy a put as insurance for stock you own.
  • Costly but protects from big losses.

• End of Phase 2: Students should be able to place basic trades like covered calls or cash-secured puts with confidence.

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Phase 3: Intermediate Strategies – Enhancing Returns

Lesson Notes

• Vertical Spreads (defined risk strategies)
  • Bull Call Spread: Buy call, sell higher call. Lower cost.
  • Bear Put Spread: Buy put, sell lower put. Lower cost.
  • Reduces risk/reward.
• Credit Spreads (income strategies)
  • Bull Put Spread: Sell put, buy lower put. Collect premium.
  • Bear Call Spread: Sell call, buy higher call. Collect premium.
• Iron Condors
  • Combination of put spread + call spread.
  • Neutral strategy to collect premium if stock stays in range.
• Diagonal Spreads
  • Sell short-term option, buy longer-term option.
  • Good for steady income + flexibility.
• Portfolio Thinking
  • Balancing income, protection, and growth.
  • Diversifying strategies.

• End of phase 3: Students should be able to trade spreads and understand how to manage defined-risk strategies.

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Phase 4: Advanced Options – Professional Mindset

Lesson Notes

• The Greeks in Depth
  • Delta: sensitivity to stock movement.
  • Theta: time decay (your friend if selling options).
  • Vega: impact of volatility.
  • Gamma: risk near expiration.
• Adjustments & Hedging
  • Rolling trades: extending duration or changing strike.
  • Hedging portfolio using protective puts or spreads.
• Scaling Income
  • Wheel Strategy: Sell cash-secured puts → if assigned, sell covered calls. Repeat.
  • Diagonal Spreads: Ongoing weekly premium collection.
• Risk Management
  • Never risk >2–5% of portfolio per trade.
  • Track performance. Cut losers early.
• Mindset of a Pro
  • Think like an insurance company: collect small, consistent premiums.
  • Avoid lottery-ticket trades.
  • Patience > prediction.

• End of Phase 4: Students should have the skillset to run a structured options income portfolio and think like a professional trader.

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Phase 5: Mastery & Capstone

Lesson Notes

• Apply everything to real-world trading.
• Case studies: SPY, QQQ, TSLA.
• Build an options income portfolio.
• Keep a trade journal: entry, exit, adjustments, emotions.
• Review trades weekly, refine strategy.

Final Assignment:

• Pick a stock you know well for the following trades.
• Propose:
  1. A covered call trade.
  2. A credit spread.
  3. A protective put.
• Explain why you chose each and how it fits into a portfolio.
• Show the set up of a trade on each strategy.
• Explain the reasoning of the chosen strike prices and option chain selection in view of time frames.
• Expected outcome profit or loss.