On Wednesday, I introduced you to my go-to options income strategy.

It consists of just three steps:

  1. Identify volatile stocks
  2. Confirm the trend in volatility
  3. Select appropriate options

We covered Steps 1 and 2 on Wednesday. But Step 3 is what really sets this strategy apart.

I don’t just sell puts or covered calls, like most income traders. I take a different approach, which drastically reduces my risk… and makes for far more consistent profits.Today you’ll learn what that is, as we walk through each step of an income strategy that’s handed us instant cash profits every single time…

A Deliciously Volatile Stock

I wasn’t surprised to see Walmart (WMT) on my volatility screener Tuesday morning.

The company reported better-than-expected earnings. Management also shared their plan to navigate high inflation.

I expected the stock to rally… and other traders clearly agreed.

WMT jumped almost 5% at the open. That move sent volatility surging through the options chain.

So we can cross Step 1 off the list. I had a deliciously volatile stock in my sights.

Next was confirming the trend in volatility.

For this, I needed to check my volatility indicator. You can see it at the bottom of the chart below.

Turn Your Images On

(Click here to view larger image.)

Most traders rely on the Volatility Index (VIX) to gauge volatility. But honestly… I don’t think I’ve looked at it in years.

There are big problems with the VIX. For one, it only applies to S&P 500 futures — not individual stocks. And worse, the VIX doesn’t give precise trade signals.

To overcome these issues, I created my own volatility indicator — the red line in the chart above.

Just like VIX, it rises when prices fall. But unlike the VIX, it works on any stock. And it generates trading signals when it crosses its moving average (MA), the thin blue line.

On Tuesday, my volatility indicator crossed below its MA. That’s a buy signal, telling us volatility in WMT will drop.

That meant prices were likely to rise, and the value of put options would decline. Step 2 — confirming the trend in volatility — was done.

This handed us a perfect opportunity to instantly pull cash from the options market. But rather than do what 99% of other income traders like to do, I don’t settle for unlimited risk.

Don’t Just Sell an Option… Sell a Spread

WMT passed Steps 1 and 2. Now, it was time for the final and most important step… Picking the right trade.

Typically, you sell an option to generate income. But selling options is risky. I learned this the hard way, when a black swan killed the 95% win rate on my put-selling strategy.

After three consecutive losses wiped out more than six months’ worth of gains, I realized I needed a way to limit my risk.

Now, I use a spread strategy. I still sell an option, but I also BUY a second option at the same time.

This way, I get consistent income and defined risk.

Since the chart of WMT was bullish on Tuesday, I needed to trade a “bull put credit” spread.

To do that, you first sell a put with a strike price below WMT’s market price. Then you buy a second put with a strike even lower than the put you sold, at the same expiration date.

With WMT trading near $139 on Tuesday morning, I emailed subscribers of Market Leaders and told them to sell the August 19 $136 put and buy the August 19 $132 put.

The process takes just 2 minutes on a trading platform. And it reliably puts instant income in your pocket every single week.

This trade, for example, generated immediate income of $32 per contract. We’d keep all of that as long as WMT stayed above $136 per share.

And even if WMT did fall below $136 at expiration, the put we bought would rise in value. Because of this, the maximum we could lose was $368 per contract.

That still may sound like too much risk for the reward. But when you sell puts or covered calls, the risks are much larger. The maximum risk of selling a put on this trade would be $3,570 per contract. That’s almost 10 times more than my spread strategy.

I also use a pricing model to make sure my trades have at least an 80% chance of success. In this trade, my model showed there was a 92% probability both options would expire worthless. And I still managed that 8% risk aggressively, by double-checking the news and trade risk profile.

Finally, I trade the spreads myself, so I immediately know if the trade turns against us. That way, I can recommend closing the position early to save capital.

In short, I do everything possible to make sure these trades are winners.

And so far, it’s working. In Market Leaders, we’ve kept 100% of the income on our first three spread trades.

We still have 49 more of these trades in the next year. To get them in your inbox for just $4 a month, click here now.

And remember, that’s only part of what we offer. You also get access to Mike Carr’s rebalanced portfolio of the top tickers to hold every single month.

It’s the same strategy he used to manage more than $200 million for a Wall Street firm. Now, for the first time ever, it’s available to individual investors.

To learn more about Market Leadersclick here.

Regards,Amber HestlaSenior Analyst, True Options Masters