DIAGONAL LEAP SPREAD PORTFOLIO STRATEGY An Income Strategy

Joseph R. Stadelnikas, M.D., M.B.A. Updated 07/15/2008 Biog aph! Unde g ad"ate# United States Milita ! A$ade%!, &est 'oint, B.S., 1(70 ) ad"ate# *ol"%+ia Uni,e sit! *ollege o- 'h!si$ians . S" geons, M.D., 1(75 ) ad"ate# Uni,e sit! o- So"th /lo ida, M.B.A., 1((5

M! -o$"s has +een on de,eloping a eti e%ent st ateg!. 0his is a st ateg! that is not going to gi,e -i1ed in$o%e et" ns, +"t athe e2"it! et" ns 3ith less isk. 4 ha,e +een e-ining diagonal sp eads -o o,e 15 !ea s to %eet those goals. 627 !ea s option t ading e1pe ien$e8. M! goal is -o a 15% OVERALL et" n -o %! enti e po t-olio. 6Ret" n 3ill +e %"$h g eate 3ith the diagonal leap sp ead po tion8 /o e1a%ple# 9100,000 po t-olio 9:0,000 in diagonal sp ead options ; 70< ann"al et" n = 912,000 950,000 in -i1ed in$o%e ; 5< ann"al et" n = 97,000 0otal Ret" n = 915,000 < Ann"al Ret" n = 15< 0hese et" ns a e possi+le 3ith the Diagonal >eap Sp eads 6D>S8 st ateg! ithe "les a e -ollo3ed and good %one! %anage%ent "sed. STEP #1 De,elop a $o e +"!?and?hold po t-olio on pape @"st as !o" 3o"ld i- !o" ne,e intended to t ade options. 0!pi$all!, this 3o"ld $onsist o- "sing asset allo$ation and di,e si-i$ation a$ oss di--e ent e2"ities and -i1ed in$o%e $lasses. 0his 3o"ld $onsist o- assigning a total a%o"nt o- %one! -o the enti e po t-olio. Assign a pe $entage -o ea$h asset $lass and position and then assign a dolla a%o"nt to ea$h. THIS IS A RITI AL STEP !!!!!!!!!! THIS IS "HAT "ILL #A$E THIS STRATEGY LESS RIS$Y THAN A %&Y'HOLD STRATEGY!!!!!!!!

4 +elie,e the +est e2"ities to "se in this D>S st ateg! a e di,e si-ied A0/Bs that ha,e la ge t ading ,ol"%es. Best oneBs 4MC# S'D, 4&M, A/A, AAM. All these -"nds a e di,e si-ied, ie. the! a enBt %ade "p o- sto$ks in the sa%e ind"st ! o sa%e se$to . 4 donBt like A0/Bs like EEEE, %ostl! te$h sto$ksF G>A, all ene g!F G>/, all -inan$ial,,,,,,,et$. 4 3ant a + oad %i1 o- sto$ks in an A0/. SPY ( &S )arge ca* e+,-t-e. I"# ( &S .ma)) ca* e+,-t-e. EFA ( Internat-ona) /e0e)o*e/ co,ntry e+,-t-e. EE# ( Internat-ona) emerg-ng mar1et e+,-t-e. /o the -i1ed in$o%e po tion one $an "se A)). 0his in,est%ent seeks in,est%ent es"lts that $o espond to the p i$e and !ield pe -o %an$e othe total United States in,est%ent?g ade +ond %a ket as de-ined +! the >eh%an B othe s U.S. Agg egate inde1. 0he e a e %an! othe -i1ed in$o%e %odalities, in$l"ding a lo3 -ee %one!?%a ket -"nd, %an! o--e ed +! Hang"a d. >etBs take a eti ee 3ith#

APITAL AVAILA%LE2 3145554555

Cne needs to allo$ate a%o"nts to e2"ities and -i1ed in$o%e. HOSEN ASSET ALLO ATION2 6e7am*)e on)y!8 99:;% FI<=-7e/ -ncome<3145554555 O= t>e rema-n-ng ??:?% may@e one may Aant t>e =o))oA-ng: B5% C5% C5% 15% L :::)arge ca* &S e+,-t-e.<1?:?C% or 3C554555 S :::.ma)) ca* &S e+,-t-e.<D:??% or 31C54555 ID:::-nternat-ona) /e0e)o*e/ co,ntr-e.<D:??% or 31C54555 IE:::-nternat-ona) emerg-ng mar1et.<?:??% or 3554555

Tota) In0e.te/ E 3145554555

/o the sake o- si%pli$it!, 4 3ill "se S'D as o" $hoi$e o- e2"it! -o the enti e e2"it! po tion -o this e1a%ple. 4 3ill allo$ate all 9500,000 to S'D to keep things si%ple. B"t the p in$iples appl! to the othe A0/Bs as 3ell. As o- this 3 iting, 5;F1?FC55D# SPY E 31C?:DB Lea* E Dec C515 ' Str-1e G5 E 3B5:C? S>ort a)) 6S 8 E A,g,.t 31CB:55 E 3B:55 &e need to no3 $al$"late the n"%+e o- sha es -o ea$h e2"it! asset that 3e 3ant in o" +"!?and?hold po t-olio. 4n this e1a%ple, -o si%pli$it!, 3e $hose to "se onl! S'D. Sin$e 3e allo$ated 9500,000 and S'D is t ading at 9127.8:, 3e 3o"ld ha,e p" $hased :077 sha es. STEP #C &e no3 need to esta+lish a %ini%"% a$$epta+le %onthl! in$o%e goal +e-o e 3e esta+lish o" D>S po t-olio. 0his is a pe sonal de$ision. &hat 4 3ill "se th o"gho"t this e1a%ple is 95000 pe %onth. 0his in$o%e %"st +e less the de$a! o- o" leap ti%e ,al"e that o$$" s d" ing the d" ation o- o" sho t $all 6S*8. /o e1a%ple, i- o" S* p e%i"% 3as 95:00 +"t the 0H de$a! o- o" leap 3as 91000 d" ing the d" ation o- o" S*, o" net in$o%e 3o"ld +e 9::00 and o" goal o- 95000 3o"ld IC0 +e %et. Do" $an $al$"late the 0H de$a! o- !o" leap +! "sing a sp eadsheet o "sing an option $al$"lato that is eadil! a,aila+le - ee online.

#ONTHLY IN O#E GOAL E 354555

&e a e no3 ead! to esta+lish o" initial D>S position. &e -i st %"st dete %ine# ">at )ea* e7*-rat-on =or .,rrogate o*t-on =or .e))-ng co0ere/ ca)).H 4 go o"t to the -" thest e1pi ation a,aila+le, $" entl! De$e%+e 2010 -o S'D. 0he theta o- the leap is %ini%al and the ti%e ,al"e pe da! 4 a% pa!ing is s%all. 0he $ost -o a D40M leap is %"$h g eate than A0M leap. Sin$e the e is ,e ! little ti%e ,al"e in a D40M leap, the e is little ,ega e--e$t. Hega e--e$t is a %a@o isk "sing diagonal leap sp eads and it is %ini%iJed, +"t not eli%inated +! "sing D40M leaps. 0hat is, $hanges in i%plied ,olatilit! 3ill not ha,e the sa%e e--e$t on leap ,al"e than i- an A0M leap 3e e $hosen as a s" ogate. Re%e%+e , the e a e no - ee+ies in t ading options. 4- !o" think !o" -o"nd so%ething that gi,es !o" %o e et" n, t "st %e, it also $o%es 3ith %o e isk. Do" al3a!s gi,e "p so%ething, i- !o" get so%ething. Sin$e 4 "se D40M leaps, -" thest e1pi ation and di,e si-ied inde1 A0/Bs, 4 a% 3illing to ha,e a little %o e %one! on the ta+le. &hat do 4 getK 0he s%alle theta and the s%alle ti%e ,al"e. ">at .tr-1e *r-ce =or )ea*H 4 look -o a leap 3ith a delta o- 0.80 o g eate . Si%ple. So, 4 3o"ld sele$t the De$e%+e 2010 ? 9(0 st ike 3hi$h has a delta o0.81. &h! so D40MK Re%e%+e , one $an $ontin"e to 3 ite sho t $alls against that position all the 3a! do3n to 9(0. &hen so%eone p" $hases A0M st ikes -o the leap, the $ost is less in the sho t te %, +"t 3ith a s%all $o e$tion in the "nde l!ing one %a! not +e a+le to $olle$t p e%i"%s - o% the sho t $all 6pe haps -o %an! %onths8. 0hat dest o!s the 3hole p" pose o- this st ateg!. ie, ret-rement -ncome. 4 e2"i e the leap $hosen ha,e a delta o- at least 0.80 -o a eason. 0his is i%po tant +e$a"se 4 do not sell sho t $all $ont a$ts e2"al to the n"%+e o- leap $ont a$ts. 0his allo3s %e to a,oid anothe eal isk o- diagonal leap sp eads 6D>S8, a %a@o "p3a d %o,e in "nde l!ing sto$k p i$e. 4- !o" sell 1#1 atio o- S*#>eap, !o" $o"ld +egin to lose %one! 3hen the "nde l!ing p i$e goes a+o,e !o" S* st ike p i$e. 0he eason is that !o" leap ,al"e 3ill not app e$iate 91 -o e,e ! 91 o"nde l!ing p i$e in$ ease. >ea,ing so%e S*Bs "n$o,e ed allo3s -o the o,e all position to in$ ease 3ith the in$ ease o- the "nde l!ing p i$e.

HoA many contract. o= t>e )ea* .>o,)/ Ae *,rc>a.eH A+o,e 3e allo$ated, in o" +"!?and?hold po t-olio, 9500,000 and -o this e1a%ple 3e allo$ated all 9500,000 to S'D. S'D at 9127.8: 3e 3o"ld o3n :077 sha es 6500,000/127.8:8. Aa$h $ont a$t in options has 100 sha es. 0he e-o e, 3e 3o"ld ha,e :0 leap $ont a$ts 6 o"nded do3n8. 0he delta othe De$e%+e 2010 ? 9(0 st ike leap is 0.81. An e2"i,alent sto$k position 6AS'8 3o"ld +e :0/0.81 o :( $ont a$ts. 0he $" ent %a ket ,al"e o- the leaps is 9:0.27/sha e. 0he total $ost to p" $hase 3o"ld +e :(L100L:0.27 o 91(7,127. 0hat %eans 3e ha,e the e2"i,alent sto$k position o- 9500,000 3ith 91(7,127 in,ested and at isk. Re%e%+e NO le,e ageMMMMM DonBt +e g eed! o !o" 3ill +e so !. 'la$e the e%aining 9500,000 %in"s 91(7,127 o 9702,877 into a -i1ed in$o%e asset and a -i1ed in$o%e ate o- et" nMMMMM Do NOT le,e ageMMMM So 3he e a e 3eK &e 3anted to in,est 9500,000 in S'D. &e a e long leaps 6sto$k s" ogate8 o- 91(7,127 3ith 9702,877 in sa-e -i1ed in$o%e 3ith the potential o- e2"al et" n o +ette 3ith less isk : I )-1e t>-. .o =ar. I#PORTANT! '"t the $ash a+o,e into a SEPARATE $ash a$$o"nt - o% the -i1ed in$o%e po tion o- !o" +"!?and?hold po t-olio. &e 3ill +e "sing the "n"sed $ash po tion a+o,e -o t3o p" poses# 1. to oll o"t o" leaps to a -" the e1pi ation 3hen the! +e$o%e a,aila+le 2. to p" $hase additional leap $ont a$ts 3hen o" %ini%"% %onthl! in$o%e goal $an not +e %et

No3 %"$h sho"ld 3e allo$ate to ea$h o- these p" posesK P,r*o.e #1# Rolling 6B0C a ne3 -" the e1pi ation leap, S0* $" ent leap8 an option -o 3a d is ine1pensi,e +e$a"se the in,esto is selling an option 3ith si%ila $ha a$te isti$s at the sa%e ti%e. 4 allo$ate 70< o- the leap $ost to olling. &h! that a%o"ntK 0he ann"al oll -o 3a d $ost is "nkno3n, +"t !o" $o"ld "se the $ost di--e en$e +et3een the De$e%+e 200( and De$e%+e 2010 ; +oth st ikes o- 9(0 as a p o1!. 0hat di--e en$e, toda!, is 97.15. &e ha,e :( $ont a$ts 6:(00 sha es8. 0he ann"al $ost 3o"ld +e 97.15 L :(00 o 915,:75. 70< o- 91(7,128 6the $ost o- S'D leaps in this e1a%ple8 is 95(,178. 0his a%o"nt 3o"ld allo3 a oll o- 7 o : ti%es 6!ea s8. Re%e%+e a e initial leaps a e 2?7 !ea s in length 3ith the a+ilit! to oll 7 o : additional !ea s. 0hat is 5 to 7 !ea s and 3ill allo3 "s to 3eathe an! $o e$tion in the o iginal %a ket ,al"e o- the "nde l!ing e2"it! 6at least histo i$all!8 and hen$e o" leap 3hile $olle$ting %onthl! in$o%e. ?5% or 35G41?D a))ocate/ to ro))-ng P,r*o.e #C2 '" $hase additional leap $ont a$ts 3hen o" %ini%"% %onthl! in$o%e goal $an not +e %et. Rema-n-ng DLS ca.> 63?5C4D;? ' 35G41?D8 or 3CB?4;?5 a))ocate/ to *,rc>a.e a//-t-ona) )ea*. /,r-ng mar1et correct-on. >etBs pa"se he e at step O2 and look at o" po t-olio. TOTAL PORTFOLIO VAL&E E 3145554555 F-7e/ Income E 3145554555 DLS E 35554555 DLS'SPY Lea*. E 31G;41C; DLS' a.> 6.e*arate acco,nt =rom a@o0e8 E 3?5C4D;? Ro))-ng E 35G41?D STO NeA Lea*. E 3CB?4;?5 Im*ortant2 "-t> a *ort=o)-o 0a),e o= 3145554555 Ae >a0e at r-.1 ONLY 31G;41C; or 1?:1B% not 35554555:

A+o,e 3e $al$"lated the app o1i%ate ann"al $ost to oll o"t one !ea to +e 915,:75. &e ha,e 9702,877 in o" D>S?*ash a$$o"nt. At 5< inte est the a%o"nt o- inte ested $olle$ted 3o"ld +e 5< L 9702,877 o 915,1:7. 0he e-o e, a el! does ne3 %one! ha,e to +e added in o de to oll on a !ea l! +asis. And one $an "s"all! in$ ease the st ike 95 -o o" leap -o a oll -o IC additional $ost. So 3he e does the in$o%e $o%e - o% ea$h %onthK Do" a e eti ed and need %one!M So$ial se$" it! isnPt going to helpM 100< in +onds 3onBt help eithe . STEP #? SELL OVERED ALLS AGAINST THE LEAPS P&R HASED 6ie, *o,e ed $all 3ith >eap as S" ogate -o Sto$k C3ne ship8. ">at .tr-1e =or t>e .>ort ca))H 0his is the eas! pa t. 4 sele$t the st ike 3ith the %ost ti%e ,al"e. 0hat is eithe the -i st st ike 40M o the -i st st ike C0M. ">at e7*-rat-on =or t>e .>ort ca))H 0he nea %onth $all option, i- the e is at least 15 dte 6da!s to e1pi ation8. 4- not, go to the ne1t %onth. 6Q15 da!s R:5 da!s8 HoA many .>ort ca)) contract. /o Ae .e))H Cne isk 3ith diagonal sp eads is the "pside p o+le%. 4 a,oid it. 4 hate isk. No3 to a,oid itK Sell eno"gh sho t $alls to gi,e !o" a position delta atio o2.1 o g eate . 6long position delta di,ided +! sho t position delta8.

a)c,)at-on2 # ontract. E # )ea* contract. I )ea* /e)ta De)ta rat-o I .>ort ca)) /e)ta

Yo, c>oo.e t>e /e)ta rat-o2 C:1 -. acce*ta@)e

0o %ake things as si%ple as possi+le, "se the leap delta. /o e1a%ple, i!o" leap delta is 0.77 "se 7#10 atio 6a,e aging do3n8. 4- the delta is 0.87 "se 8#10. 4- the delta is 0.(1 "se (#10 atio. 0he i%po tant thing he e is that !o" 3ant eno"gh "n$o,e ed leap $ont a$ts so that ega dless o- ho3 high the "nde l!ing inde1 in$ eases d" ing the %onth, the o,e all D>S position $ontin"es to in$ ease and not de$ ease in ,al"e. 0his %eans that 4 3ill en@o! $apital app e$iation o- S'D e,en a+o,e %! st ike p i$e o- 912: 3ith %! o,e all position. 0he 10 leap $ont a$ts that do not ha,e sho t $alls sold against the% 3ill in$ ease 90.81 -o ea$h 91.00 in$ ease in S'D. Io %atte ho3 high S'D in$ eases that %onth 4 3ill not lose %one! in %! o,e all position. 4 3ill $ontin"e to in$ ease %! et" n 3ith ea$h dolla in$ ease in S'D, +"t less than i- 4 o3ned o"t ight the e2"i,alent sha es. 0he e-o e, %! "pside isk has +een eli%inated. * iti$s o- this st ateg! al3a!s $ite the "pside isk. B! not selling 10#10 atio, +"t ad@"sting the atio +ased on o" deltas, this "pside isk is eli%inated. 0oda! 07/17/2008, sin$e the e is onl! 5 da!s to J"l! e1pi ation, 3e 3ill "se the A"g"st e1pi ation -o o" S*Bs. &ith S'D at 9127.8: 3e 3ill sell the 912: st ike $alls sin$e the! a e the one 3ith the la gest 0H. &e 3ill sell at a 8#10 to o" leaps. C" leaps a e :( $ont a$ts, the e-o e :(L0.8 is 7( S* $ont a$ts to +e sold.

0he 912: A"g"st 2008 S*Bs ha,e a p e%i"% o- 9:.00 +id. 0he e-o e, 9:.00 L 7(00 is 915,500 in S* p e%i"%s $olle$ted. Using %! sp eadsheet o an! othe option anal!Je so-t3a e $al$"lated the >eap 0H de$a! -o the 7: da!s to A"g"st e1pi ation to +e 91175. C si%pl! look at option 2"otes - o% n"%e o"s - ee online 3e+sites and look at the $" ent theta -o !o" leap. 4n this $ase, o" leap theta is 0.0071. 0he e-o e, 7: da!s L 0.0071 dolla s lost pe da! as a es"lt o- de$a! L :(00 sha es is = 91187. 0hat is $lose to 3hat %! o3n sp eadsheet $al$"lated. 0he Iet Ret" n 6915,500 %in"s 911758 is 91:,:25. 0his is a+o,e o" 95,000 %ini%"% %onthl! e2"i ed in$o%e. C" Iet *apital 4n,ested is 91(7,128 Ret" n 4- Io *hange in Unde l!ing 4nde1 is 691::25/91(71288 = 7.72< Ann"aliJed that Ret" n is 7.72 L 755/7: = 78.55< 0he D>S position has do3nside p ote$tion o- 7.(< 615500/1(71288 C" leaps ha,e an initial 0H o- 95.7(. 69(0 S 9:0.278 %in"s 9127.8: >eap St ike 640M8 S >eap ' e%i"% ; Sto$k ' i$e = 0i%e Hal"e 0he e-o e, :(.8< o- the leap 0H is $o,e ed in o" -i st sold $all. 69:.00L7(008/695.7(L:(008 = :(.8< and 3e ha,e 2( %o e %onths to sell $alls against o" leaps $olle$ting %onthl! in$o%e.

TOTAL PORTFOLIO VAL&E E 3145554555 F-7e/ Income E 3145554555 DLS E 35554555 DLS'SPY Lea*. E 31G;41C; DLS' a.> 6.e*arate acco,nt =rom a@o0e8 E 3?5C4D;? Ro))-ng E 35G41?D STO NeA Lea*. E 3CB?4;?5 In-t-a) DLS Po.-t-on STO ( ?G contract. A,g 5D ' 31CB J 3B:55 E 3154955 %TO ( BG contract. Dec 15 ' 3G5 J 3B5:C? E 31G;41CD Decay Lea* E 311;5 Net Prem-,m. 6-ncome8 E 3154955 ' 311;5 E 31B4BC5 Im*ortant2 "-t> a *ort=o)-o 0a),e o= 3145554555 Ae >a0e at r-.1 ONLY 31G;41C; or 1?:1B% not 35554555: "e noA >a0e at r-.1 ONLY 631G;41C; ' 31549558 or 31D145CD or 1C:1% o= o,r ent-re *ort=o)-o 0a),e o= 3145554555:

T>e rema-n/er o= o,r D STEPS o,t)-ne. >oA Ae manage o,r money an/ o,r -n-t-a) DLS *o.-t-on a=ter -t -. e.ta@)-.>e/:

STEP #B At A"g"st 2008 e1pi ation, i- the S* is C0M, si%pl! let it e1pi e 3o thless. 4- the S* is 40M, then !o" need to B0*. 4 "s"all! do this &ednesda! o 0h" sda! o- e1pi ation 3eek to a,oid assign%ent. >etBs sa! at A"g"st e1pi ation S'D is t ading at 9125.00. 0he S* 3o"ld +e t ading at 92.00. 92.00 ti%es 7(00 sha es 67( $ont a$ts8 3o"ld +e 97800 $ash needed to B0*. 4 do IC0 p"t ne3 %one! into positions as the "nde l!ing sto$k is in$ easing. Remem@er yo, Aant to @,y )oA an/ .e)) >-g>. 0he e-o e, 4 3ill sell eno"gh leap $ont a$ts to $o,e the a+o,e $ost o- 97800. C" 9:0.27 leap 3o"ld +e 3o th app o1i%atel! 9:1.87. 60.80 delta ti%es 92.00 = 91.50 added to the 9:0.278 No3 %an! leaps to S0*K 97800/9:1.87 o 185 sha es o 1.8 $ont a$ts o"nded "p to 2 $ont a$ts.

STEP #5

a)c,)at-ng A/K,.te/

o.t %a.-. o= Lea*

F-r.t /eterm-ne yo,r tota) net -n0e.tment to /ate: S,m a)) yo,r %TO )ea*. a// a)) yo,r %T S L. an/ .,@tract a)) ST )ea*.: T>-. A-)) @e t>e tota) amo,nt o= money yo, >a0e -n0e.te/ -n t>e *o.-t-on: D-0-/e t>at tota) @y t>e n,m@er o= c,rrent )ea* contract. I 155: T>-. A-)) g-0e yo, t>e c,rrent a/K,.te/ co.t @a.-.:
A/K,.te/ o.t %a.-. E S,m %TO Lea*. M S,m %T S L. ( S,m ST ,rrent # Lea* ontract. I 155 Lea*.

STEP #9 4- the $" ent leap ,al"e is g eate than the ad@"sted leap *B $al$"lated a+o,e $ontin"e to S0C S*Bs as in Step O7. As !o" S0* leaps to pa! -o the $ost o- 40M S*Bs the ad@"sted *B 3ill +e highe than the $" ent leap ,al"e +e$a"se o- the delta o- the leap is not 1.0 As the di--e en$e +et3een o" ad@"sted *B and the $" ent leap ,al"e 3idens, 3hethe d"e to a d op in the "nde l!ing sto$k p i$e o +e$a"se othe a+o,e delta e--e$t, 3e need to ad@"st 3hat st ike p i$e 3e $hoose -o the ne1t nea %onth S0C S*Bs. Re%e%+e , i- o" S*Bs go 40M and o" ad@"sted leap *B is a+o,e the $" ent leap ,al"e 3e 3ill +e losing %one! on those leaps i- 3e ha,e to S0* to $o,e $ost o- 40M S*Bs. &e need to ad@"st o" S* st ike to a,oid that possi+ilit!.

0he e-o e, i- 3e take the di--e en$e +et3een the ad@"sted leap *B and the $" ent leap ,al"e and di,ide +! the $" ent leap delta, add that di--e en$e to the $" ent sto$k p i$e to $hoose a st ike p i$e, 3e 3o"ld a,oid that possi+ilit!. &h!K 4- the "nde l!ing sto$k ea$hes that pa ti$"la st ike, o" leap ,al"e sho"ld in$ ease to app o1i%ate o" ad@"sted leap *B. Do" %a! $onside , 6i- ad@"sted leap *B is g eate than $" ent leap ,al"e8 S0C S*Bs to >eaps at a atio o- 10#10 to %a1i%iJe %onthl! in$o%e. E7am*)e2 6NOT c,rrent 0a),e.8 O,r .toc1 *r-ce -. 31CB:55N a/K,.te/ )ea* % -. 3BC:55N c,rrent )ea* 0a),e -. 3B5:55 A-t> a )ea* /e)ta o= 5:D5N 63BC'3B58F5:D5 E 3C:55 A// t>at 3C:55 to o,r .toc1 *r-ce o= 31CB:55 E 31C;:55 6 >oo.e t>at a. ne7t S .tr-1e8: I= t>e ,n/er)y-ng -ncrea.e. to 31C;:55 at S e7*-rat-on4 t>e c,rrent )ea* 0a),e .>o,)/ a**ro7-mate)y -ncrea.e to 5:D5 6t>e /e)ta8 t-me. 3C:5 631C;:55 ' 31CB:558 or 3C:55: T>e )ea* 0a),e t>en at e7*-rat-on .>o,)/ @e 3B5:55 M 3C:55 or 3BC:55: 6T>e .ame a. o,r a/K,.te/ )ea* %8: I= Ae t>en >a/ to ST )ea*. to co0er t>e co.t o= an IT# S 4 yo, Ao,)/ not @e .e))-ng @e)oA yo,r co.t an/ not )o.e money: I= t>e .tr-1e *r-ce ca)c,)ate/ a@o0e >a. a /e)ta o= )e.. t>an 5:C54 c>oo.e a .tr-1e A-t> a /e)ta c)o.e.t to 5:C5: A .tr-1e A-t> a /e)ta m,c> )e.. t>an 5:C5 /oe. not4 -n genera)4 *ro/,ce a/e+,ate *rem-,m.: T>e /e)ta a).o -. an a**ro7-mat-on o= t>e *ro@a@-)-ty o= t>e o*t-on go-ng IT# at e7*-rat-on: T>at Ao,)/ @e a@o,t C5% an/ -= -t goe. IT#4 yo, A-)) >a0e t>e a@-)-ty to ro)) o,t or o,t an/ ,* =or a net cre/-t e0en -= yo, >a0e to .e)ect a mont> t>at -. not t>e ne7t near mont>:

STEP #; 0his step is p ett! %"$h sel-?e1planato !. 4n s"+se2"ent %onths, i- the total S* p e%i"%s %in"s the esti%ated 0H de$a! o- o" leaps d" ing the d" ation o- the S* is less than o" %onthl! in$o%e goal, p" $hase additional leap $ont a$ts. 0he $ ite ia 3ill +e the sa%e as the o iginal leap p" $hases. 4 keep those leaps as a sepa ate ne3 initial position to %ake a$$o"nting easie . 4 p" $hase eno"gh leap $ont a$ts "sing the sa%e steps as a+o,e to gene ate additional in$o%e to %eet %! %onthl! in$o%e goal. 4 ne,e e1$eed the a%o"nt o- $ash in the D>S $ash a$$o"nt that has +een allo$ated -o ne3 leap p" $hases as dete %ined in Step O2 a+o,e.

STEP #D

EA H #ONTH REPEAT STEPS #B THRO&GH 3;

D4S*>A4MAR Cptions in,ol,e isk and a e not s"ita+le -o all in,esto s. All in,esto s 3ho deal 3ith options sho"ld ead and "nde stand the p"+li$ation T*ha a$te isti$s and Risks o- Standa diJed Cptions.T 6333.$+oe.$o%8 4 do not p o%ise, g"a antee o i%pl! ,e +all! o in 3 iting that an!thing $ontained in this pape 3ill ne$essa il! es"lt in a p o-it. 4 a% the $op! ight o3ne o- all te1t and g aphi$s $ontained in this pape and an! sp eadsheets. *op!ing, p"+lishing o edist i+"ting an! %ate ial in an! 3a! 3itho"t the 3 itten $onsent o- %e is st i$tl! p ohi+ited. 4 a% not lia+le -o an! losses o da%ages, %oneta ! o othe that %a! es"lt - o% the appli$ation o- in-o %ation $ontained 3ithin this pape . 4ndi,id"al t ade s %"st do thei o3n d"e diligen$e in anal!Jing options to dete %ine ithe! ep esent a s"ita+le oppo t"nit!. 4 a% not esponsi+le -o an! losses o p o-its that %a! es"lt - o% the appli$ation o- in-o %ation $ontained 3ithin this pape . Cption t ading in,ol,es s"+stantial isk. Do" $an lose %one! t ading options. 0he e a e inhe ent isks in,ol,ed in the sto$k %a ket and these isks sho"ld +e $onside ed p io to an! de$ision. Iothing p"+lished in this pape sho"ld +e $onside ed pe sonaliJed in,est%ent ad,i$e. 4 a% not li$ensed "nde se$" ities la3s to add ess !o" pa ti$"la in,est%ent sit"ation. Io $o%%"ni$ation +et3een "s ,ia e%ail, $hat oo%, o an! othe %eans o- $o%%"ni$ation sho"ld +e dee%ed as pe sonaliJed in,est%ent ad,i$e.

ETF E EO HANGE TRADED F&ND IV E I#PLIED VOLATILITY DLS E DIAGONAL LEAP SPREADS OT# E O&T OF THE #ONEY AT# E AT THE #ONEY IT# E IN THE #ONEY DIT# E DEEP IN THE #ONEY S E SHORT ALL L E LONG ALL RO E ROLL O&T R& E ROLL &P %TO E %&Y TO OPEN %T E %&Y TO LOSE STO E SELL TO OPEN ST E SELL TO LOSE N% E NOTE "ELL