How Much You Can Expect To Collect Using Options?

There is a difference between creating capital gains and cash flow.

Capital gain works best in bull markets, while cash flow works in all market conditions (using the options wheel strategy).

The idea is therefore to build up your portfolio size using the bull markets, and continually collect cash flow from the stock market using the options wheel strategy.

Now, how much you actually expect to collect using the options wheel strategy? 

Well, read on to find out. At the end, it will also show you how much you need to become financially free.

How Much You Can Expect To Collect

Well, I use the options wheel strategy differently from others due to the careful use of margin.

I tend to sell my options with expiry days of around 14 days - the estimated ROI is around 1 to 2% based on the margin requirement that I put out.

Here's an example

• META 14OCT22 150 P
• Share Price: $133.32
• Trade on 5 Oct 22
• Expiry 11 days
• Premium Collected: 0.72 (i.e. $72)
• Initial Margin Requirement: $1388.40 (read this article to know how to calculate)

This means that if I wanted to sell my put options, I need to have at least $1388.40 in equity. However, as the share price falls, this margin requirement for the sell put will increase as well. 

As a rule of thumb, I take the conservative approach that I need at least 2.5x times the margin requirement, which is $1388.40 x 2.5 = $3,471.

This is so that even if the share price falls considerably, I am still able to hold my sell put positions.

This means that if I have $3,471 in equity, I can comfortably sell the put option without getting worried of it being exercised. With $72 collected, it is a total ROI of $72/$3471 = 2.07% - this is for 11 days.

For a total of 30 days, it will average between 4% to 5% per month.

How Much You Need To Be Financially Free?

Well, with that as a rule of thumb, you then be able to estimate how much you need to be financially free through the cash flow collected using options.

Let's say I have a monthly expense of $2,000 - I will usually target to collect at least three times of my expenses, i.e. $6,000 of cash flow using options.

Being conservative and let's say I only collect 3% every month, I would require a total capital of:

Total Capital Required: $6,000 / 3% = $200,000

How do I get till a total of $200,000 in the first place?

Well, as I said, the best way to grow your portfolio is by taking advantage of market downturns to buy quality companies at undervalued prices.

For myself, I use the 8-point checklist to guide me into finding quality companies. Check out the link below to find out more about this checklist.

The Bottom Line

Build your portfolio by taking advantage of market downturns to invest in quality companies. This works best when the bull market eventually comes.

As always, constantly use your portfolio to generate cash flow using the Option Wheel Strategy. To optimise your portfolio even further, use that cash flow to invest even more and constantly build your portfolio - which I typically use it for investing into ETFs like SPY and NDAQ.

That is how we build our wealth tremendously over time.