Last week I showed you my stellar results from using Jim Fink’s Options for Income service as a “salary-replacement” plan. This week I will show you it works.

I’ll be the first to tell you that I am not an options trading expert. I can explain the basics of puts, calls, and even spreads thanks to Jim Fink’s training.

But please don’t ask me to explain “The Greeks” and their impact on options pricing. I’ve read about them and grasp the concepts just fine in the moment. I just don’t have the passion to study them until they’re second nature.

What I do have passion for is making money. And that’s why I’m perfectly happy to follow Jim’s advice on trading put credit spreads in his Options for Income service. I don’t do it blindly. I understand how to follow Jim’s clear instructions, the mechanics of each trade, and how to react in various situations. And you can, too.

What Is A Put Credit Spread

A put credit spread is a bullish options strategy where you make money if the stock stays above a certain price. Your profit is limited to the credit you receive when you place the trade, and your downside risk is limited to the spread minus the credit you receive.

Let’s use a 2017 example on Domino’s Pizza (DPZ), for which a younger me made an instructional video with more detail.

In this trade example, the DPZ stock price is trading at $180, and we will trade just one options contract, which represents 100 shares of stock. In simple terms, we will:

• Sell to open a March $170 put – to get paid
• Buy to open a March $165 put – to protect our downside risk
• Get paid a net credit now of $155
• Wait approximately three months to find out if we win…should the stock price simply stay above our $170 strike price

This is what Jim’s trade instructions actually look like…

How We Make Money

If you want to make money in life, you need to sell something. So, we are selling a $170 put option to someone on the options exchange. We’ll call him Risky Ronny.

By buying a put option at $170 when the stock is trading at $180, Ronny is making a risky bet that the stock price will fall below $170 by the time the option expires in three months. We, on the other hand, don’t need the stock to move at all.

At the time of purchase, Ronny’s option is “out of the money” or “worthless”. And as long as the stock is trading above $170, Ronny would have no interest in using his put contract to sell us the stock at $170. Only when the stock drops below $170 does Ronny’s contract become “in the money” and valuable to him.

We’re happy to enter this transaction because most people like Ronny guess wrong and lose. All we need to win this trade is for the stock price to be above $170 at expiration. So, Jim is giving us a $10 cushion on this trade ($180 – $170).

How We Protect Ourselves

Jim uses a blend of fundamental analysis, technical analysis, and seasonality to decide on which stocks to recommend trades. But he’s not always right. That’s why he loves put credit spreads, a strategy of buying an insurance put at the same time that we sell a put to Ronny.

In our example, we will buy the insurance put with a strike price of $165, thus limiting our risk to only $500 (that’s ($170 – $165) x 100 shares of stock).

But our risk is actually less than that…

How Much We Make

Both the option we’re selling and the one that we’re buying have a market price. In this example…

• The put option we’re selling is trading at $3.00
• The put option we’re buying is trading at $1.45
• So, we are entering a limit order to execute this trade only if we can collect the net credit difference between those prices of $1.55 or greater

That $155 ($1.55 x 100 shares) is ours to keep regardless of how this trade turns out. Thus, our maximum risk on this trade is really only $345 ($500 spread risk minus our $155 credit).

And that means that our potential return on this trade is 45% ($155 / $345) in just 90 days! To get that same gain as a stockholder, you would need the stock to rise from $180 to $261.

Roughly half of the trades that Jim recommends return 30-40% in just 90 days.

From 50% to 98% Wins

The other half of the trades go through a process of “rolling” into a new trade that buys us more time to recoup any loss on the first trade plus make a profit.

These trades typically end up with a holding period of closer to nine months on average…still a great result. But even if a trade were to take a few years to hit your profit target, that’s similar to most people’s expectations when investing in stocks.

So if you’re okay with some trades taking a little longer to win, you too can experience Jim’s 98% win rate.

As an Options for Income subscriber, Jim walks you through how all this works. He gives you specific instructions with every trade. And his community of thousands of loyal subscribers are there to cheer you on and provide additional support every week.

To find out for yourself and to start collecting credits this Thursday when Jim’s weekly trades are released, use this special offer code now.

Next week I’ll show you what the Options for Income new subscriber experience looks like…setting up your options trading account, learning the basics, and making your first trade.