Month: December 2025

The Retail Carry Trade

How to Use the Hedge Fund Income Strategy They Don’t Want You to Know

Generate 30–45% Annual Cash Flow Using the Same Structure as the Japanese Carry Trade

December 16, 2025 Edition

What Hedge Funds Know (That Retail Doesn’t)

Professional traders understand something fundamental about options pricing that sounds complicated but is actually very simple.

Let me explain it the way a hedge fund manager explained it to his 12-year-old daughter:

“Dad, what do you do at work?”

“I sell insurance to people who are scared.”

“What kind of insurance?”

“Stock insurance. People are afraid their stocks might drop, so they pay me money every week for protection.”

“But what if the stocks DO drop?”

“Most of the time, they don’t drop as much as people think. People pay me $100 for insurance against a $50 problem. I keep the extra $50.”

“That seems like a good deal for you.”

“It is. And here’s the secret: I ALSO buy my own insurance—really cheap insurance that lasts a long time. So if stocks ever crash badly, I’m protected too.”

“So you get paid to sell expensive insurance, and you buy cheap insurance for yourself?”

“Exactly.”

“Why doesn’t everyone do this?”

“Because most people don’t know they can.”

The Simple Truth About Options Prices

Here’s what hedge funds discovered:

People overpay for short-term protection.

Think about car insurance:

  • Insurance for one week: $50
  • Insurance for one year: $600 (which is like $11.50 per week)

Why is weekly insurance so expensive? Because insurance companies know most people won’t use it, and they charge extra for the convenience of short-term coverage.

Options work the same way.

When you sell a weekly call option, someone is paying you $400 to protect against the stock going up too much THIS WEEK.

But most weeks? The stock doesn’t go up that much.

You’re getting paid $400 for protection that was really only worth $250.

The extra $150? That’s your profit. That’s “the carry.”

The Long-Term Protection Is Cheap

Now here’s the other side:

Long-term protection is cheap per week.

If you buy a put option that lasts 2 years (104 weeks), it might cost you $5,200 total.

That’s $50 per week.

But here’s what you’re collecting every week from selling calls: $400.

Math:

  • You collect: $400/week
  • You pay: $50/week (spread over the year)
  • Your profit: $350/week

And that protection you bought? It saves you from disaster if the market crashes.

Why This Works (The 6th Grade Version)

Imagine you have a lemonade stand.

Every week, people pay you $10 to make sure their lemonade doesn’t spill.

Most weeks, nobody spills anything. You keep the $10.

Once a year, you pay $100 for a big insurance policy that covers ALL spills for the whole year.

Math:

  • You collect $10/week × 52 weeks = $520/year
  • You pay $100/year for your insurance
  • Your profit: $420/year

And if there’s ever a huge spill? Your $100 insurance covers it.

That’s the Retail Carry Trade.

You’re selling expensive weekly protection (calls) and buying cheap yearly protection (puts).

The difference is your income.

The Market Systematically Overprices Short-Term Volatility

Big words, simple meaning:

“Volatility” = How much the stock price bounces around

“Short-term” = This week

“Overprices” = Charges too much

People are scared stocks will bounce around a lot THIS WEEK. So they pay extra for protection.

But most weeks? Stocks don’t bounce that much.

The market charges $400 for weekly protection that’s really only worth $250.

That $150 difference? That’s yours to keep. Every week. For decades.

Why This Is Not Speculation

Speculation = guessing which way the stock will go

This strategy doesn’t care which way stocks go.

  • If stocks go up a little: You keep your premium ✓
  • If stocks go sideways: You keep your premium ✓
  • If stocks go down a little: You keep your premium ✓
  • If stocks crash hard: Your long-term protection saves you ✓

You’re not betting on direction.

You’re harvesting the difference between:

  1. What scared people pay you (weekly calls = expensive)
  2. What calm protection costs you (yearly puts = cheap)

That difference is structural. It doesn’t disappear.

The Spread Between What You Collect and What You Pay Is the Carry

“Carry” just means the profit you get from the difference.

Think of it like this:

You rent out your house for $3,000/month. Your mortgage costs you $1,500/month. Your “carry” is $1,500/month profit.

In this strategy:

You collect $1,600/month selling weekly calls. Your yearly protection costs you $5,200 (which is $433/month). Your “carry” is $1,167/month profit.

That’s it. That’s the whole strategy.

Collect more than you spend. The difference is income.

This Is the Same Edge That Made the Japanese Carry Trade Profitable for Thirty Years

In the 1990s and 2000s, hedge funds did something called the “Japanese Carry Trade”:

  1. Borrow money in Japan at 0% interest
  2. Invest it in America at 5% interest
  3. Keep the 5% difference

They did this for 30 years. Made billions.

Why did it work for so long?

Because Japan ALWAYS had low interest rates, and America ALWAYS had higher rates.

The difference was structural, not temporary.

The options carry trade is the same concept:

  1. Sell weekly options at high prices (people are always scared short-term)
  2. Buy yearly protection at low prices (long-term protection is always cheaper per week)
  3. Keep the difference

People are ALWAYS more scared about this week than they are about next year.

That fear premium has existed since options started trading in 1973.

It’s not going away.

Hedge Funds Have Harvested This Edge Since the 1990s

Morgan Stanley. Goldman Sachs. Citadel. Bridgewater.

They’ve all run versions of this strategy for 30+ years.

They don’t talk about it publicly because:

  1. It’s boring (no CNBC headlines)
  2. It works (why share it?)
  3. Retail investors weren’t supposed to know

But now you do.

Now You Can Too

You don’t need:

  • A finance degree
  • Special software
  • A trading desk
  • Millions of dollars

You need:

  • A brokerage account with options approval
  • $100,000+ to deploy
  • 45 minutes per week
  • The discipline to follow the system

The edge is simple:

Short-term protection is expensive (sell it). Long-term protection is cheap (buy it). The difference is your income.

Hedge funds figured this out in the 1990s.

They’ve been collecting this premium for three decades.

You’re not discovering something new.

You’re doing what the professionals have done since your parents were in high school.

The only difference? You’re keeping 100% of the profits instead of paying them 2% + 20% of gains.

That’s the Retail Carry Trade.

Simple enough for a 6th grader.

Profitable enough for a billionaire.

Now it’s yours.

Disclaimer

This book is for educational purposes only. Options involve substantial risk and are not suitable for all investors. Past performance does not guarantee future results. Consult a qualified financial professional before implementing any strategy discussed herein.

Prologue: The Secret the Hedge Funds Keep

David sat in the conference room on the 14th floor, watching his financial advisor flip through the quarterly report. Sixty-three years old. Retirement in eighteen months. The meeting he’d been having every quarter for the past eleven years.

“Your portfolio is up 9.2% year-to-date,” the advisor said, pointing to a chart with an upward-sloping line. “We’re outperforming the benchmark by—”

“How much cash?” David interrupted.

The advisor paused. “I’m sorry?”

“How much actual cash did I make? Spendable. Not on paper.”

The advisor’s finger moved to a different page. “Well, the dividends were $18,400 for the year, paid quarterly, and—”

“On $850,000.”

“Yes.”

“That’s 2.1%.”

Silence.

“David, you’re thinking about this wrong. Your total return was over 9%, and when you retire, we’ll implement a systematic withdrawal strategy that—”

“I don’t want a withdrawal strategy. I want income. My father had a pension. He got a check every month. I need the same thing, but I don’t have a pension.”

“The 4% rule—”

“Is a guess. What if the market drops the year I retire? What if I withdraw 4% and then it falls 30%? You’ve shown me the Monte Carlo simulations. I’ve seen the failure rates.”

The advisor leaned back. “David, you’re describing sequence-of-returns risk, and yes, it’s real. But the alternative is accepting lower returns and potentially running out of money later.”

David stood up. The meeting was over.

That evening, he did what he always did when someone told him there was no solution: he started digging.

He started with the Japanese carry trade. The strategy that hedge funds had used for decades to print money. Borrow in yen at near-zero rates. Invest in higher-yielding assets. Collect the spread.

Simple. Elegant. Massively profitable.

But that’s not what caught his attention.

What caught his attention was a footnote in a research paper from a former Goldman Sachs options desk trader. The paper explained how institutional investors were running a different kind of carry trade—not with currencies, but with volatility.

They would:

  1. Own the underlying asset (long equity exposure)
  2. Sell short-term options (harvest premium income)
  3. Buy long-dated protection (define catastrophic risk)

The structure was a collar. But unlike the conservative collars sold to retail investors (designed to reduce volatility for fee-based advisors), this was an income collar—designed to extract maximum cash flow while maintaining market exposure.

Hedge funds called it “volatility arbitrage” or “dispersion trading.”

David called it exactly what he needed.

Three weeks later, he found a detailed breakdown on an obscure forum from a former market maker. The strategy had a name in the retail world: the Protected Wheel.

Six months after that Tuesday, David was generating $28,000 per month in option premium income on the same $850,000 portfolio.

His advisor never called to ask how.

This book is what David found. It’s the same income structure hedge funds have used for decades—now available to anyone with a brokerage account and the discipline to execute it.

Your advisor won’t tell you about it.

But hedge funds have been doing it since the 1990s.

Executive Summary (Read This First)

This book presents the retail version of a strategy hedge funds have used for decades: the volatility carry trade.

While the Japanese carry trade borrowed cheap yen to invest in higher-yielding assets, the options carry trade does something similar:

  1. Own the underlying asset (SPY/QQQ—broad market exposure)
  2. Sell short-term volatility (weekly options premium)
  3. Buy long-term protection (define catastrophic downside)

Hedge funds call this “volatility arbitrage” or “dispersion trading.”

We call it the Retail Carry Trade—because now you can do it too.

The structure uses only two ETFs—SPY (S&P 500) and QQQ (Nasdaq-100)—to generate 30–45% annualized cash income primarily from option premiums, while long-dated puts cap catastrophic downside.

What Hedge Funds Discovered

In the 1990s and early 2000s, institutional traders realized something crucial:

Short-term implied volatility is almost always overpriced relative to realized volatility.

Translation: The market pays you more to sell short-term options than those options are actually worth.

Hedge funds built entire strategies around this edge:

  • Sell weekly and monthly options
  • Collect premium income
  • Hedge with long-term protection
  • Repeat indefinitely

This is not speculation. This is not directional trading. This is premium harvesting—the same way the Japanese carry trade harvested interest rate differentials.

The edge is structural. It doesn’t disappear.

Why Retail Investors Never Heard About It

Because it doesn’t fit the advisory business model.

Hedge funds charge 2 and 20 (2% management fee + 20% performance fee). They profit from absolute returns and income generation.

Retail advisors charge 1% on assets under management. They profit from growing account balances, not distributing cash.

The strategies serve different masters.

Hedge funds optimize for cash flow and risk-adjusted returns.

Retail advisors optimize for AUM growth and client retention.

This is why your advisor never mentioned it.

The Problem It Solves

  • Bonds yield ~4% and lose to inflation
  • Dividends alone are insufficient
  • Buy-and-hold exposes retirees to sequence-of-returns risk

The real retirement risk is running out of cash flow, not market volatility.

The Solution in One Sentence

Own the market, insure the downside, sell time every week.

How It Works (At a Glance)

  1. Buy 100-share blocks of SPY and/or QQQ
  2. Buy a long-dated put (Jan 2027, 5–8% out-of-the-money) to define maximum loss
  3. Sell weekly out-of-the-money calls (20–30 delta)
  4. Collect premiums weekly as spendable income

This is an aggressive income collar, not a speculative trading system.

Why SPY & QQQ Only

  • Ultra-liquid options
  • Weekly expirations
  • No earnings risk
  • No fraud or blow-up risk

Recommended allocation:

  • 60–70% SPY (stability)
  • 30–40% QQQ (income boost)

Real-World Income Examples (Illustrative)

Assumptions (conservative):

  • SPY weekly call income ≈ 0.6% of deployed capital
  • QQQ weekly call income ≈ 0.9% of deployed capital
  • Long-dated puts fully paid for by premiums over time

$100,000 Portfolio

  • $65k SPY / $35k QQQ
  • Weekly income ≈ $390 (SPY) + $315 (QQQ) = ~$705/week
  • Annualized cash flow ≈ $36,000–$40,000 (36–40%)

$250,000 Portfolio

  • $165k SPY / $85k QQQ
  • Weekly income ≈ $990 (SPY) + $765 (QQQ) = ~$1,755/week
  • Annualized cash flow ≈ $85,000–$95,000

$500,000 Portfolio

  • $325k SPY / $175k QQQ
  • Weekly income ≈ $1,950 (SPY) + $1,575 (QQQ) = ~$3,525/week
  • Annualized cash flow ≈ $170,000–$190,000

These figures reflect premium income only. Market appreciation is secondary and not required for success.

Expected Results (Not Promises)

  • SPY: ~30–35% annualized cash yield
  • QQQ: ~40–45% annualized cash yield
  • Income is premium-driven, not price-driven
  • Upside is capped, downside is defined

What This Strategy Is NOT

  • Not a get-rich-quick system
  • Not market-beating in melt-up rallies
  • Not passive—you manage weekly

Key Risks (Be Honest)

  • Premiums compress in low volatility
  • Upside is sacrificed for income
  • Requires discipline and consistency

Who This Is For

  • Retirees and near-retirees
  • Income-focused investors
  • Anyone who values predictable cash flow over bragging rights

Bottom Line

If you want growth stories, buy and hold.

If you want cash you can spend, with market exposure and controlled risk, the Protected Wheel delivers a repeatable framework that works across market cycles.

One-Week Trade Snapshot (Actual Structure)

Illustrative snapshot based on typical market conditions; prices rounded.

Example Week: SPY & QQQ Income Cycle

Underlying prices:

  • SPY: ~$681
  • QQQ: ~$610

Protection (already in place):

  • SPY Jan 2027 630 Put (≈7.5% OTM)
  • QQQ Jan 2027 560 Put (≈8% OTM)

These puts define worst-case loss and are not traded weekly.

Weekly Call Sales

SPY Call Sale

  • Expiration: Friday (same week)
  • Strike: 695
  • Delta: ~0.25
  • Premium: ~$3.90 per share ($390 per contract)

QQQ Call Sale

  • Expiration: Friday (same week)
  • Strike: 630
  • Delta: ~0.28
  • Premium: ~$5.25 per share ($525 per contract)

Weekly Cash Collected (per 100 shares):

  • SPY: $390
  • QQQ: $525

No forecasting. If called away, shares are replaced the following week.

What the Monthly Checks Look Like

This strategy is judged by cash deposited, not account balance fluctuations.

Monthly Income Illustration (Per $100,000)

Assumes 65% SPY / 35% QQQ allocation.

MonthWeekly AvgMonthly CashNotes
January$700~$3,000Lower volatility
February$750~$3,200Normal conditions
March$900~$3,900Volatility spike
April$650~$2,800Compression
May$800~$3,500Earnings season
June$750~$3,200Steady

Annual Run-Rate: ~$36,000–$40,000 per $100k

Scale linearly with capital.

Why This Beats Dividend Portfolios (Blunt Version)

Dividend portfolios are sold as “safe.” They are not.

Dividends:

  • 2–4% yields
  • Cut during recessions
  • Paid quarterly
  • No downside protection

Protected Wheel:

  • 30–45% cash yield
  • Paid weekly
  • Adjustable in real time
  • Downside defined by insurance

Dividends depend on corporate generosity.

Option premiums depend on time and volatility, which never disappear.

This strategy replaces hope with math.

Stress Test: Income Through Market Crashes

This strategy is designed for when markets misbehave.

2008 Financial Crisis

  • Volatility exploded
  • Call premiums increased
  • Long puts expanded sharply
  • Income continued while portfolios collapsed

2020 COVID Crash

  • SPY dropped ~34% peak to trough
  • Weekly premiums doubled in weeks
  • Protected Wheel sellers were paid more for risk
  • No forced liquidation

2022 Rate Shock Bear Market

  • Prolonged grind lower
  • Sideways volatility favored premium sellers
  • Income remained consistent
  • Buy-and-hold investors stagnated

Key Point: Crashes are income events for disciplined option sellers.

Protection allows participation instead of panic.

What Happens If SPY Drops 25% in 90 Days (Step-by-Step)

This is the scenario retirees fear most. Here is exactly how the Protected Wheel responds.

Starting Point

  • SPY price: $680
  • Shares owned: 100
  • Long put: Jan 2027 630
  • Weekly calls: 20–30 delta

Month 1: Initial Selloff (-8% to -10%)

  • SPY falls to ~$620
  • Call premiums increase due to volatility
  • Weekly income rises despite falling prices
  • Long put begins gaining intrinsic value

Action: Continue selling weekly calls above market price. No panic, no changes.

Month 2: Acceleration (-15% to -20%)

  • SPY trades ~$545–$580
  • Call strikes move lower, but premiums remain elevated
  • Long put now provides meaningful downside offset
  • Net account drawdown is far smaller than buy-and-hold

Action: Maintain structure. Income continues. No forced sales.

Month 3: Capitulation (-25%)

  • SPY near ~$510
  • Volatility peaks
  • Weekly call income remains strong
  • Long put absorbs additional downside

Result at 90 Days:

  • Capital loss is defined and survivable
  • Premium income partially offsets price decline
  • Shares are still owned
  • Strategy remains intact

The Psychological Difference

Buy-and-hold investors:

  • Freeze or sell near lows
  • Lock in losses

Protected Wheel operators:

  • Get paid more
  • Stay systematic
  • Avoid emotional decisions

Bottom Line: A 25% drop is not a failure event. It is a stress test the strategy was built to pass.

Table of Contents

Chapter 1: The Retirement Income Problem (And Why Bonds Fail)

Chapter 2: Why Your Broker Will Not Recommend This

Chapter 3: The Case for SPY & QQQ Only

Chapter 4: What Is the Protected Wheel?

Chapter 4: Why Protection Changes Everything

Chapter 5: Strategy Architecture: The Exact Mechanics

Chapter 6: Strike Selection, Deltas, and Timing

Chapter 7: Cash Flow Math: Where 30–45% Comes From

Chapter 8: SPY vs QQQ: Risk, Reward, and Allocation

Chapter 9: Market Regimes: Bull, Bear, Sideways

Chapter 10: The Rules Checklist (Laminated-Card Simple)

Chapter 11: Your First 30 Days (Implementation Guide)

Chapter 12: Full 12-Month Cash Ledger ($250k & $500k)

Chapter 13: Tax Considerations and Account Structure

Chapter 14: Common Mistakes and How to Avoid Them

Chapter 15: When to Exit or Modify

Retirees were sold a lie: that bonds would reliably fund retirement. With yields hovering around 4% and inflation eating half of that, traditional fixed income no longer does the job. You either take equity risk, or you accept shrinking purchasing power. There is no third option.

The Protected Wheel exists because retirees need cash flow, not stories about long-term averages.

Appendix A: Compliance-Safe Language for Advisors

Appendix B: Broker Requirements and Platform Setup

PART ONE: FOUNDATION

Chapter 1: The Retirement Income Problem (And Why Bonds Fail)

Margaret’s hands shook as she read the letter from her bond fund. Third dividend cut in two years.

She’d done everything right. Saved diligently. Diversified. Followed the advice. Sixty percent stocks, forty percent bonds. The classic retiree allocation.

The bonds were supposed to be the safe part. The income part. The part that paid her bills while the stocks grew.

Except the bonds paid 3.8%. And inflation was running at 3.2%. Her “safe” income was gaining 0.6% per year in purchasing power. Before taxes.

After taxes, she was losing ground.

She called her advisor.

“Margaret, bond yields are what they are. The Fed has kept rates elevated, but with inflation moderating, this is actually a reasonable real return. And remember, bonds provide stability. They’re not supposed to be growth vehicles.”

“I don’t need growth vehicles. I need income. I need to pay my mortgage. I need to buy groceries. I can’t pay bills with ‘stability.'”

“I understand your frustration. We could look at high-yield bonds, but those carry more risk—”

“Everything carries risk. I’m just trying to understand why I spent forty years saving money and now I can’t afford to live on it.”

The advisor had no answer.

Because there isn’t one. Not in the traditional model.

The Promise That Broke

For fifty years, retirees were sold a simple story:

  1. Save money while you work
  2. At retirement, shift to bonds for income
  3. Live off the interest
  4. Leave the principal to your kids

It worked for one generation. The generation that retired in the 1980s and 1990s, when bonds paid 7%, 9%, even 12%.

A $500,000 bond portfolio at 8% threw off $40,000 per year. Livable. Sustainable.

But that generation is gone. And so are those yields.

Today’s retiree faces:

  • Bond yields at 4%
  • Inflation at 3%+
  • Real return of ~1%
  • Taxes eating another 25-30%

The math is simple. And devastating.

A $500,000 portfolio at 4% generates $20,000 per year. After taxes, that’s $14,000-$15,000. After inflation, the purchasing power drops further every year.

You cannot retire on this. Not with dignity.

The Two Bad Options

When Margaret realized bonds wouldn’t work, her advisor presented two alternatives:

Option 1: Stay in stocks for growth

“Keep your equity allocation high. Accept the volatility. Over time, stocks outperform bonds, and you can sell shares as needed for income.”

Translation: Bet that the market goes up during your retirement. Hope you don’t hit a bear market in year two. Pray sequence-of-returns risk doesn’t destroy you.

Option 2: Annuities

“We can lock in guaranteed income with an annuity. You’ll get a check every month for life.”

Translation: Hand over your principal, lose liquidity, accept 4-5% payout rates, and hope the insurance company doesn’t fail.

Margaret looked at both options.

Option 1 terrified her. She remembered 2008. She remembered friends who retired in 2007 with $800,000 and were forced back to work in 2009 with $450,000.

Option 2 felt like surrender. Give up control. Accept mediocre returns. Lock in for life.

She didn’t choose either.

She kept digging.

What Retirees Actually Need

Margaret didn’t need to beat the market. She didn’t need to impress anyone at the country club with her portfolio performance.

She needed $5,000 per month. Reliable. Repeatable. For the next thirty years.

That’s it.

The traditional retirement industry has no clean answer for this. Because the traditional industry optimizes for:

  • Assets under management (their fees)
  • Portfolio values (their performance reporting)
  • Long-term growth (their marketing materials)

They don’t optimize for cash flow. Because cash flow leaves the account. And when cash leaves the account, fees shrink.

Your income problem is their revenue problem.

The Real Risk

Advisors talk about “risk” as if it means volatility. Price swings. Drawdowns. Standard deviation.

But that’s not the risk that matters to retirees.

The real risk is running out of money.

The real risk is being eighty-two years old and choosing between prescriptions and groceries.

The real risk is selling stocks at the bottom because you need cash and the market decided to drop 30% the year you retired.

Margaret understood this. And she understood that her advisor’s focus on portfolio growth and Sharpe ratios had nothing to do with her actual problem.

She didn’t need her portfolio to compound at 8% if she couldn’t spend any of it.

She needed income. Weekly. Monthly. Regardless of whether the market was up or down.

The Answer They Won’t Give You

Six months after that phone call, Margaret was generating $4,200 per week in option premiums on a $650,000 portfolio.

She didn’t sell a single share. She didn’t lock up her principal in an annuity. She didn’t pray for the market to cooperate.

She learned to sell time.

The Protected Wheel exists because Margaret, David, and thousands of others like them figured out what the retirement industry refuses to acknowledge:

Income doesn’t come from hoping. It comes from structure.

Retirees were sold a lie: that bonds would reliably fund retirement. With yields hovering around 4% and inflation eating half of that, traditional fixed income no longer does the job. You either take equity risk, or you accept shrinking purchasing power. There is no third option.

The Protected Wheel exists because retirees need cash flow, not stories about long-term averages.

Chapter 2: Why Your Broker Will Not Recommend This

Tom worked at a major wirehouse for seventeen years. Series 7, Series 66, CFP®. He managed $240 million in client assets.

He was good at his job. His clients liked him. His retention rate was high. He won awards.

And then one of his clients—a retired engineer named Robert—came to a review meeting and said something that changed everything.

“Tom, I’ve been doing some research. I want to talk about option strategies.”

Tom smiled. “Sure. We can add a covered call overlay if you want some extra income. I’ve got a strategy paper I can send you.”

“Not a covered call overlay. A protected collar. Weekly call sales. Long-dated downside protection. I want to run this on SPY and QQQ.”

Tom’s smile faded. “Robert, that’s… that’s pretty aggressive for someone in retirement. Options are complex instruments, and—”

“I’ve done the math. I can generate 30-35% annualized income with defined downside risk. That’s $120,000 per year on my $400,000 IRA. I need $60,000 to live. This solves my retirement.”

Tom shifted in his chair. “Let me talk to compliance and see what—”

“You’re going to tell me no.”

“I’m going to tell you that I need to make sure any recommendation is suitable, and that kind of weekly options activity—”

“I’m not asking for a recommendation. I’m telling you what I’m going to do. I just want to know if I can do it here or if I need to move my account.”

Tom paused. He’d known Robert for nine years. He knew the client was smart, methodical, disciplined.

And he knew what would happen if Robert moved the account.

The Conversation Tom Had That Night

Tom went home and did the math himself.

Robert’s account: $400,000

Annual advisory fee (1%): $4,000

If Robert implemented the strategy and withdrew $60,000 per year, the account would shrink to $340,000 after year one.

Next year’s fee: $3,400

Tom’s revenue from Robert would drop $600. And if Robert kept withdrawing, it would keep dropping.

Now multiply that by 200 clients.

Tom sat at his kitchen table and stared at his laptop. He’d built his practice on helping people retire successfully. He believed in what he did.

But the firm measured him on assets under management, not on whether his clients had enough money to buy groceries.

His performance review never asked: “Did your clients have enough income this year?”

It asked: “Did your AUM grow?”

What Compliance Said

Tom brought Robert’s request to the compliance department.

“He wants to do what?”

“Weekly covered calls with long-dated protective puts. A collar structure on SPY and QQQ.”

The compliance officer—a former attorney named Michelle—frowned. “That’s a lot of activity. What’s the investment thesis?”

“Income generation. He’s targeting 30% annual yield.”

“Thirty percent.” Michelle wrote something down. “That sounds… aggressive. Does he understand the risks? Does he understand that options can expire worthless? Does he understand tax implications?”

“He’s an engineer. He built a spreadsheet. He understands it better than most advisors.”

“Tom, here’s the issue. If we approve this and it goes wrong—if there’s a massive drawdown, if he complains, if he sues—we have to defend it. And defending weekly options activity for a seventy-two-year-old retiree is not a fight we want to have with FINRA.”

“But if he moves his account to a self-directed brokerage, he can do whatever he wants.”

“That’s his choice. We’re not in the business of approving high-risk strategies just because a client wants them.”

Tom knew what that meant.

Robert would leave. And Tom’s AUM would drop by $400,000.

The Real Reason

Tom called Robert and delivered the news.

“I’m sorry. Compliance won’t approve it. They’re concerned about the activity level and the suitability for your age and risk profile.”

Robert was silent for a moment. Then: “Tom, can I ask you something?”

“Of course.”

“If you could do this strategy yourself—if you weren’t restricted by compliance—would you do it?”

Tom hesitated. “I… I don’t know. I’d have to study it more.”

“That’s not what I asked. If the math works, if the risk is defined, if the income is there—would you do it?”

“Honestly? Probably.”

“Then why won’t you let me?”

Tom didn’t have an answer.

Robert moved his account two weeks later.

This Chapter Exists Because of Tom

Tom stayed at the wirehouse for three more years. Then he left to start his own RIA.

He now manages $60 million in assets. Fewer clients. Smaller firm. No compliance department telling him what he can’t do.

And he runs the Protected Wheel for seventeen of his clients.

But most advisors never leave. They stay in the system. They follow the rules. They recommend what compliance approves.

And they never tell you about strategies like this.

Not because they’re bad people.

Because the system isn’t built for your income. It’s built for their fees.

The Incentive Structure (Explained Plainly)

The standard advisory model charges 1% annually on total account value.

For a $500,000 account:

  • Traditional portfolio: $5,000/year in fees (every year, forever)
  • Protected Wheel: Same $5,000/year in fees

The problem? The Protected Wheel generates $180,000/year in income. You might withdraw $100,000. Your account balance shrinks. Next year, they charge 1% on $400,000 instead of $500,000.

Their revenue drops as you succeed.

Buy-and-hold keeps assets growing (hopefully). Growing assets = growing fees. Income strategies that distribute cash shrink the base.

You are not the customer in the traditional model. Your account balance is.

This Strategy Requires Work

Advisors manage hundreds of clients. They cannot babysit weekly option expirations across 300 portfolios.

They need:

  • Set-it-and-forget-it allocations
  • Quarterly rebalancing at most
  • Strategies that scale to their entire book

The Protected Wheel demands weekly attention. It doesn’t fit their operational model, even if it’s superior for your cash flow.

Options Are Positioned as “Risky”

The retail investment industry spent decades teaching clients that:

  • Stocks = investing
  • Options = gambling

This framing protects their business model. If clients understood that selling covered calls with protection is mathematically safer than naked buy-and-hold, the 60/40 portfolio would lose its mystique.

Options have risk. So do stocks. But the industry treats one as respectable and the other as dangerous, not because of the math, but because of the narrative.

Compliance Departments Hate Complexity

Even if your advisor personally believes in the Protected Wheel, their compliance department may forbid it. It’s easier to recommend safe mediocrity than defend intelligent aggression.

Compliance loves:

  • Index funds
  • Bonds
  • Target-date funds
  • Anything with a prospectus and a Morningstar rating

Compliance hates:

  • Weekly trading
  • Strategies they don’t understand
  • Anything clients might complain about later

The Industry Doesn’t Measure Success by Cash Flow

Advisors are evaluated on:

  • Portfolio returns vs. benchmarks
  • Assets under management growth
  • Client retention

They are NOT evaluated on:

  • Cash distributed to clients
  • Monthly income generated
  • Spending power sustained

If your portfolio grows 12% but you need income and have to sell shares, that’s considered success in their world. If your portfolio stays flat but generates $90,000 in spendable premiums, that looks like underperformance.

The metrics are rigged against income strategies.

It Threatens the Retirement Drawdown Model

The financial planning industry built an empire on the 4% rule:

  • Retire with $1,000,000
  • Withdraw $40,000/year
  • Hope it lasts 30 years

This model keeps assets invested (and fees flowing) for decades.

The Protected Wheel flips this:

  • Same $1,000,000
  • Generate $360,000/year in premiums
  • Spend what you need, reinvest the rest

This is a 9x income increase. It doesn’t need “safe withdrawal rate” calculators or Monte Carlo simulations. It just works.

If clients figure this out, the entire retirement planning industrial complex has a problem.

Your Advisor May Genuinely Not Know

This is not always malice or greed. Many advisors simply never learned options mechanics beyond “covered calls are a conservative income strategy” in their Series 7 exam.

They don’t know:

  • How to structure a collar
  • How to select deltas
  • How to manage weekly expirations
  • How volatility affects premium income

Their training focused on asset allocation, not income engineering. They recommend what they were taught, which is the same thing everyone else recommends.

What This Means for You

Option 1: Self-direct in an IRA or brokerage account. Execute the strategy yourself.

Option 2: Find a fee-only advisor who specializes in options strategies and will implement this for you (rare but they exist).

Option 3: Keep your traditional portfolio with your advisor for growth, and run the Protected Wheel separately for income.

You cannot expect your broker to recommend something that:

  • Shrinks their revenue
  • Requires weekly work
  • Challenges their compliance department
  • Outperforms their standard offerings by 8–10x

The Uncomfortable Truth

Tom never told Robert about the Protected Wheel because the system didn’t allow it.

Your advisor won’t tell you for the same reason.

The retirement income problem is solved. The math works. The strategy is repeatable.

But it will not be recommended by the institutions that profit from your account balance, not your cash flow.

This is why this book exists.

Chapter 3: The Case for SPY & QQQ Only

Most option losses come from one mistake: single-stock risk. Earnings gaps, fraud, lawsuits, dilution—none of these matter when you trade the market itself.

SPY (~$681): Broad S&P 500 exposure, lower volatility, consistent premiums.

QQQ (~$610): Nasdaq-100, higher volatility, richer premiums, growth bias.

Both have:

  • Deep liquidity
  • Tight bid/ask spreads
  • Weekly options
  • Massive institutional participation

This strategy ignores everything else on purpose.

Chapter 4: What Is the Protected Wheel?

Chapter 4: What Is the Protected Wheel?

The traditional wheel sells puts, takes assignment, then sells calls. It works—until it doesn’t. The Protected Wheel removes the fatal flaw: unlimited downside.

Core Structure:

  1. Buy 100 shares of SPY or QQQ
  2. Buy a long-dated put (Jan 2027, 5–8% OTM)
  3. Sell weekly out-of-the-money calls (20–30 delta)
  4. Collect cash. Repeat.

This is a collar, run aggressively and systematically for income.

Chapter 5: Why Protection Changes Everything

Chapter 5: Why Protection Changes Everything

Without protection, retirees panic in drawdowns. Panic leads to bad decisions.

The long put:

  • Defines maximum loss
  • Allows consistent call selling during crashes
  • Converts fear into math

Breakevens typically sit 30–40% below current prices, depending on premiums collected.

This is not about avoiding losses. It’s about controlling them.

Chapter 6: Strategy Architecture: The Exact Mechanics

Chapter 6: Strategy Architecture: The Exact Mechanics

Richard was a software engineer at Google for twelve years. He understood systems. Logic. Architecture.

When he first read about the Retail Carry Trade, he did what every engineer does: he tried to optimize it.

“What if I sell puts AND calls?” “What if I use margin to double the position?” “What if I trade monthly options instead of weeklies for better premiums per trade?” “What if I add a third leg—maybe sell put spreads for extra income?”

He spent three months backtesting variations. Building spreadsheets. Running Monte Carlo simulations.

Then he talked to a former CBOE trader named Luis who’d been running this strategy since 2003.

Luis asked one question: “Why are you trying to fix something that already works?”

Richard didn’t have a good answer.

Luis continued: “The institutions that survived 2000, 2008, and 2020 didn’t survive because they got clever. They survived because they kept the structure simple and executed it with discipline. You want to know the secret? There is no secret. It’s boring as hell.”

Richard threw out his spreadsheet. Started over with the basic structure.

Three years later, his account was up $340,000.

He never touched the architecture again.

The Core Structure (No Modifications)

Luis showed Richard what hedge funds actually run:

Component 1: Long Shares (100-share blocks only)

Why 100-share blocks?

  • One options contract = 100 shares
  • Perfect pairing with calls/puts
  • No fractional confusion
  • Clean P&L tracking

Why not more complex?

  • No leverage
  • No margin
  • No pyramiding
  • No “optimizations”

Just own the shares. Cash.

Component 2: Long-Dated Puts (18-24 months, 5-8% OTM)

Richard asked: “Why not 12 months? Cheaper.”

Luis: “Because you’ll spend the last 6 months worried about rolling. 18-24 months gives you breathing room. You set it and forget it for a year.”

“Why not deeper OTM? Save more on cost?”

“Because 10-15% OTM puts barely move when the market drops 20%. You need meaningful protection. 5-8% OTM gives you real coverage without paying for paranoia.”

Strike selection:

  • SPY at $420 → buy 380-390 puts (7-9% OTM)
  • QQQ at $350 → buy 320-330 puts (6-9% OTM)

Expiration:

  • January 2027 (18+ months out)
  • Roll in December 2026
  • Always maintain 12+ months of coverage

Cost:

  • Typically 3-5% of position value
  • Paid once per year
  • Fully funded by 6-8 weeks of premium

Component 3: Weekly Calls (20-30 delta, Friday expiration)

This is where Richard initially went wrong.

He wanted to sell 40-delta calls for more premium.

Luis shut it down: “You’ll get assigned every other week. You’ll spend half your time buying shares back and managing whipsaw. The goal isn’t maximum premium. It’s sustainable premium.”

20 delta:

  • ~20% chance of assignment per week
  • More conservative
  • Less management
  • Better for volatile markets

30 delta:

  • ~30% chance of assignment per week
  • More aggressive
  • Higher income
  • Better for calm markets

Richard settled on 25-delta as his standard. Adjusted to 20 in high-vol environments, 30 in low-vol.

Friday expiration:

  • Maximum time decay
  • Weekly settlement
  • Predictable rhythm
  • No mid-week surprises

What Richard Learned: No Forecasting

Richard’s biggest mistake early on: trying to predict the market.

“SPY looks strong this week, I’ll sell the 30-delta.” “Market feels toppy, I’ll skip this week and wait for a pullback.” “VIX is low, I’ll sell closer to maximize premium.”

Every time he deviated from the system, he made less money.

Luis explained it like this:

“You’re not a forecaster. You’re a factory. Every week, the factory produces the same thing: premium income. You don’t shut down the factory because you think next month might be better. You run it. Every. Single. Week.”

Richard started tracking his results:

Weeks he followed the system blindly: +37% annualized Weeks he “optimized” based on market view: +22% annualized

The discipline produced better results than the intelligence.

The Exact Entry Checklist

Luis gave Richard a checklist. Richard put it on his wall.

BEFORE ENTERING ANY POSITION:

☐ I have $XXX,XXX in cash available ☐ I will buy only 100-share blocks (not 50, not 150, not “as much as I can”) ☐ I will buy Jan 2027 puts (5-8% OTM) on DAY ONE ☐ I will sell my first weekly call AFTER protection is in place ☐ I will commit to selling calls EVERY WEEK for at least 6 months ☐ I will not modify the structure based on “market feelings”

If you can’t check every box, don’t start.

The Weekly Execution Ritual

Richard now runs this strategy on $650,000 (400 SPY shares + 200 QQQ shares).

His weekly routine:

Monday 9:45 AM PT (after market open):

  • Check Friday’s expirations (did calls expire worthless or get assigned?)
  • If assigned: immediately repurchase shares, move to next step
  • Pull up options chain for this Friday’s expiration
  • Identify 20-30 delta strikes

Monday 10:00-11:00 AM PT:

  • Sell calls on any green candles (market up = better premiums)
  • If market is red, wait until Tuesday
  • Enter limit orders slightly above mid-price
  • Wait for fills

Monday 11:30 AM PT:

  • Record trades in spreadsheet
  • Update weekly premium tracker
  • Done

Total time spent: 45 minutes per week.

What “No Indicators” Actually Means

Richard used to check:

  • Moving averages
  • RSI
  • MACD
  • Volume
  • News headlines
  • Earnings calendars

Luis told him to stop.

“Those things matter for directional trading. You’re not directional trading. You’re selling time. Time decays whether RSI is overbought or not.”

Richard deleted his TradingView subscription.

He now checks exactly two things:

  1. What’s the 20-30 delta strike for this Friday?
  2. Is the market open?

If the answer to #2 is yes, he executes #1.

That’s it.

The Assignment Protocol (When Shares Get Called Away)

This is where most retail traders panic.

Richard’s shares got called away 14 times in his first year.

Each time, he followed the same script Luis gave him:

Friday 4:00 PM ET: Shares called away at strike price

Monday 9:30 AM ET:

  • Repurchase same number of shares at market price
  • Immediately sell next Friday’s calls (20-30 delta)
  • Record the trade
  • Move on

Do NOT:

  • Wait for a “better price”
  • Try to buy “the dip”
  • Skip a week
  • Change the structure

When shares are called away, you made money. The premium is yours. The capital gain (if any) is yours.

Repurchase immediately. Resume the cycle.

Richard’s average time from assignment to resumption: 8 minutes.

The Annual Maintenance (Rolling Protection)

Every December, Richard rolls his long puts forward.

December 2026 example:

His Jan 2027 SPY 380 puts (purchased in Jan 2025 for $18/share) are now worth ~$8/share (time decay + market changes).

He:

  1. Sells the Jan 2027 380 puts → collects $8/share ($2,400 total)
  2. Buys Jan 2028 370 puts (5-8% OTM at current SPY price) → pays $16/share ($4,800 total)
  3. Net cost to roll: $2,400
  4. This cost is covered by 3-4 weeks of premium (~$800/week)

Protection is now extended another year.

This happens once per year. Takes 10 minutes. Keeps the structure intact.

What Richard Stopped Doing (The Real Breakthroughs)

After year one, Richard made a list of everything he’d stopped:

✗ Stopped reading market commentary ✗ Stopped watching CNBC ✗ Stopped checking his portfolio multiple times per day ✗ Stopped “waiting for better setups” ✗ Stopped trying to predict FOMC reactions ✗ Stopped optimizing strike selection based on “technical levels” ✗ Stopped caring whether the market went up or down

He started:

✓ Selling calls every Monday ✓ Recording premiums in a spreadsheet ✓ Rolling puts once per year ✓ Spending 45 minutes per week on execution ✓ Sleeping through volatility

His account grew faster when he did less.

The Architecture Is the Edge

Luis explained it to Richard like this:

“Every retail trader wants a secret. A hack. An edge nobody else has. But the real edge in this strategy isn’t what you do—it’s what you DON’T do.”

You don’t:

  • Forecast
  • Trade earnings
  • Use indicators
  • Time the market
  • Modify the structure
  • Get clever

You just:

  • Own shares
  • Buy protection
  • Sell weekly calls
  • Repeat

The edge is that this structure has a positive expectancy over time because short-term implied volatility is persistently mispriced.

Institutions figured this out 30 years ago.

Richard figured it out by stopping everything else.

The Bottom Line

Shares: Long 100-share blocks only (no leverage, no margin, no games)

Puts: Jan 2027, 5–8% OTM, rolled annually (protection is non-negotiable)

Calls: Weekly expirations, 20–30 delta, sold every week (the income engine)

Objective: Cash flow first, upside second (this is not a growth strategy)

Rules: No forecasting. No indicators. No hero trades. (boring = profitable)

Richard’s results after 3 years:

  • Starting capital: $650,000
  • Current value: $990,000
  • Cash withdrawn: $285,000
  • Total gain: $625,000 (96% return)
  • Time spent per week: 45 minutes

The architecture is simple. The execution is boring. The results are exceptional.

This is why hedge funds don’t change it.

This is why you shouldn’t either.

Chapter 7: Strike Selection, Deltas, and Timing

Chapter 7: Strike Selection, Deltas, and Timing

Jennifer had been trading options for six months when she made her first real mistake.

She’d been selling 20-delta calls on SPY every week. Making $700-800 consistently. The system was working.

Then she read an article about “maximizing option income” that said she was leaving money on the table.

“Why sell 20-delta when you could sell 35-delta and make $1,100?”

The article made sense. More premium = more income. Simple math.

She switched to 35-delta calls.

Week 1: Made $1,150. Felt like a genius. Week 2: Called away at $442. SPY closed at $448. Missed $600 in upside. Week 3: Bought back at $448. Sold 35-delta calls at $458. Called away at $458. SPY closed at $463. Week 4: Bought back at $463. Sold 35-delta calls at $473. Called away at $473. SPY closed at $479.

By week 4, she’d been assigned three times. Each time, she bought shares back at higher prices. Her cost basis kept rising. Her cash kept shrinking to cover the repurchases.

After 8 weeks of “maximizing income,” her net result: -$4,200.

She called her friend Marcus, who’d been running this strategy for four years.

Marcus laughed. “You got greedy. Welcome to the club. Let me explain deltas.”

What Delta Actually Means (Plain English)

Marcus drew it out for Jennifer on a napkin at a coffee shop.

“Delta is the probability of finishing in the money at expiration. That’s it.”

20 delta = ~20% chance the call finishes in the money (gets assigned)

30 delta = ~30% chance the call finishes in the money

40 delta = ~40% chance the call finishes in the money

“When you sell a 35-40 delta call, you’re saying ‘I want more premium, and I’m willing to get assigned 35-40% of the time.’ That works great in a sideways or down market. But in an uptrend? You’ll get assigned every other week. And every time you get assigned, you’re buying shares back higher and restarting the cycle.”

Jennifer got it immediately. “So lower delta = less premium but fewer assignments?”

“Exactly. And in retirement income strategies, consistency beats optimization.“

The 20-Delta Sweet Spot

Marcus ran the numbers for Jennifer over three years:

20-delta strategy:

  • Average premium per week: $720
  • Assignment rate: ~22% (once every 4-5 weeks)
  • Annual premium collected: ~$37,000
  • Time spent managing assignments: minimal
  • Emotional stress: low

35-delta strategy:

  • Average premium per week: $1,080
  • Assignment rate: ~38% (twice per month)
  • Annual premium collected: ~$34,000 (less due to assignment friction)
  • Time spent managing assignments: high
  • Emotional stress: high

Wait—the 20-delta made MORE annually despite lower weekly premium?

“Yep,” Marcus said. “Because you’re not constantly chasing your position. You stay in the trade. The premiums compound. The 35-delta people are always buying back shares, paying spreads, missing upside, restarting. They think they’re making more, but they’re just churning.”

The 30-Delta Aggressive Variant

“So should I always do 20?” Jennifer asked.

“Depends on the market regime. I use 30-delta in low-volatility, choppy markets. When the VIX is below 15 and SPY is just grinding sideways, 30-delta makes sense. You’re getting paid more, and the market’s not going anywhere anyway.”

Marcus’s rule:

VIX < 15: Use 30-delta (market calm, maximize income) VIX 15-25: Use 25-delta (neutral positioning) VIX > 25: Use 20-delta (market volatile, play defense)

“The key is this: you’re not trying to predict the market. You’re adapting to current conditions.“

When to Sell: Timing Matters

Jennifer made another mistake in her first six months: she’d sell calls Friday afternoon after expiration.

Marcus told her to stop immediately.

“Friday afternoon is the worst time to sell next week’s calls. Why?”

Jennifer didn’t know.

“Because time decay on Friday options is mostly done. You’re selling an option with 7 days to expiration, but it’s priced like it has 6.5 days. The theta is already half-burned.”

Better timing:

Monday morning (after 9:45 AM ET): Fresh theta. Full week of decay ahead. Usually better premiums.

Tuesday morning (if you missed Monday): Still solid.

Wednesday morning (if you missed both): Acceptable but not ideal.

Friday: Only if you absolutely have to. Premiums will be lower.

Green Day vs. Red Day Execution

Marcus showed Jennifer his execution log.

“Look at these two days. Same week. Same strike. Different fill prices.”

Monday (SPY up 0.8% at open):

  • Sold SPY 7-day 450 calls (25-delta)
  • Premium: $4.20 per share

Tuesday (SPY down 0.6% at open):

  • Tried to sell SPY 7-day 450 calls (now 22-delta after the drop)
  • Premium: $3.10 per share

“Same strike. One day apart. $110 difference per contract.”

The rule: Sell on green days when possible.

Why? Because implied volatility compresses when the market goes up. But actual option prices often stay elevated for a few hours. You get the best of both: higher underlying price AND decent premium.

On red days, wait. Unless it’s Wednesday and you need to get the trade on, don’t chase premiums on down days.

Rolling vs. Letting Go (The Hardest Decision)

Jennifer got assigned on her SPY calls at $445. SPY was trading at $449.

She asked Marcus: “Should I roll the calls up and out? I could buy back the $445 calls and sell $452 calls for next week. That way I keep the shares.”

Marcus’s answer surprised her.

“Why? What’s special about these shares?”

“Well… they’re my shares. I don’t want to lose them.”

“Jennifer, SPY at $445 is identical to SPY at $449. There are no ‘special’ shares. If you get assigned, take the premium, take the capital gain, and repurchase Monday morning. Don’t get emotionally attached to share lots.”

Rolling is almost never worth it.

Why?

  • You pay the bid-ask spread twice (once to close, once to open)
  • You tie yourself to a higher strike (less premium next week)
  • You delay the inevitable if SPY keeps running
  • You waste time managing instead of executing

The only time Marcus rolls:

“If I’m assigned on a Tuesday or Wednesday—mid-week expiration for some reason—I’ll roll to Friday. But if it’s Friday? Let it go. Repurchase Monday. Sell the next call. Move on.”

The Strike Selection Formula

Marcus uses this every week:

  1. Open the options chain for this Friday’s expiration
  2. Look at the “Delta” column
  3. Find the strike closest to 20-30 delta
  4. Check the bid price
  5. Sell if the bid is acceptable

“That’s it. No chart reading. No support and resistance. No ‘this strike feels better.’ Just: Where’s the 25-delta? Sell it.”

Jennifer tried to complicate it: “But what if the 25-delta is right at a major resistance level? Shouldn’t I sell the next strike up?”

Marcus shut it down. “Resistance levels are for directional traders. You’re not a directional trader. You’re a time-decay farmer. Just sell the 25-delta and move on.”

Never Sell Below Cost Basis (Unless Protected)

This is the one rule Marcus violates deliberately—but only because he has protection.

Jennifer asked: “What if my cost basis is $445, but SPY drops to $430? The 25-delta call is now at $437. Do I sell it even though it’s below my cost basis?”

Marcus: “Yes. Because you have a Jan 2027 put at $415. Your real cost basis isn’t $445—it’s $415. Everything above that is buffer. So selling a $437 call is still $22 above your true floor.”

Without protection, never sell below cost basis. You’re locking in losses.

With protection, you can sell anywhere above your put strike. Because your real breakeven is the put, not your share entry price.

This is why protection changes everything. It gives you operational flexibility during drawdowns.

The Tuesday Assignment Trap

Jennifer got assigned on a Tuesday once. Not a Friday. She’d sold a monthly call that expired mid-week.

She panicked. “Do I buy back immediately?”

Marcus: “Yes. And stop selling monthly options. This is why we use weeklies. Weekly options expire Friday. You know exactly when assignment happens. Monthlies expire on random Wednesdays and Tuesdays. It’s just more complexity.”

Stick to Friday expirations. Always.

What Jennifer Does Now (2 Years Later)

Jennifer runs $420,000 across SPY and QQQ.

Her Monday morning routine:

9:45 AM ET: Market opens 9:50 AM ET: Check if SPY/QQQ are green 9:55 AM ET: If green, sell 25-delta calls for this Friday 10:00 AM ET: Record trade, close laptop

If red, she waits until Tuesday.

She no longer:

  • Checks charts
  • Reads analyst notes
  • Worries about “optimal” strikes
  • Tries to roll positions
  • Sells on red days
  • Sells below 20-delta or above 30-delta
  • Deviates from the system

Her results:

  • Year 1: $34,200 premium income (learning phase, made mistakes)
  • Year 2: $41,800 premium income (disciplined execution)
  • Year 3: $47,300 premium income (added capital + higher volatility)

The less she thought, the more she made.

The Rules (Printed on Marcus’s Wall)

STRIKE SELECTION:

  • 20-delta when VIX > 25
  • 25-delta standard
  • 30-delta when VIX < 15

TIMING:

  • Sell Monday morning if possible
  • Sell on green days
  • Avoid Fridays unless necessary

ASSIGNMENT:

  • Let shares go
  • Repurchase Monday
  • Don’t roll (99% of the time)
  • Never chase

NEVER:

  • Sell below cost basis (unless protected)
  • Sell above 35-delta
  • Sell on emotion
  • Deviate without reason

The Bottom Line

Selling too close (40+ delta) caps upside and creates constant assignment churn.

Selling too far (10-delta) starves income and wastes opportunity.

20-30 delta is the institutional standard for a reason: It balances income, assignment risk, and operational simplicity.

Jennifer learned this the expensive way.

You don’t have to.

Rules:

  • Sell calls on green days when possible
  • Roll only if assignment damages structure (rarely)
  • Never sell below cost basis unless covered by protection

Marcus’s last piece of advice to Jennifer:

“The goal isn’t to get every dollar out of every trade. The goal is to run a system that works for 30 years. Boring beats clever. Every single time.”

Jennifer’s account agrees.

Chapter 8: Cash Flow Math: Where 30–45% Comes From

Chapter 8: Cash Flow Math: Where 30–45% Comes From

Typical weekly call premiums:

  • SPY: 0.5–0.7% per week
  • QQQ: 0.7–1.0% per week

Annualized:

  • SPY: ~30–35%
  • QQQ: ~40–45%

Premiums pay for the put. Excess becomes spendable income.

Chapter 9: SPY vs QQQ: Risk, Reward, and Allocation

Recommended blend:

  • 60–70% SPY (stability)
  • 30–40% QQQ (income boost)

This balances volatility while keeping income high.

Chapter 10: Market Regimes: Bull, Bear, Sideways

Chapter 10: Market Regimes: Bull, Bear, Sideways

Bull: Income lags buy-and-hold, but remains strong

Sideways: Strategy excels, time decay dominates

Bear: Volatility spikes, premiums increase, protection holds

The strategy adapts automatically through premium expansion and contraction.

PART TWO: EXECUTION

Chapter 11: The Rules Checklist (Laminated-Card Simple)

Chapter 11: The Rules Checklist (Laminated-Card Simple)

Print this. Keep it visible. Follow it every week.

SETUP RULES

✓ Own 100-share blocks only (SPY or QQQ)

✓ Buy Jan 2027 put, 5–8% OTM

✓ Allocate 60–70% SPY, 30–40% QQQ

WEEKLY CALL RULES

✓ Sell Friday expiration, 20–30 delta

✓ Sell on green days when possible

✓ Collect premium Monday–Wednesday (avoid Friday)

IF ASSIGNED

✓ Repurchase shares immediately

✓ Sell next week’s call same day

✓ No emotion, no revenge trades

IF MARKET DROPS >10%

✓ Continue selling calls

✓ Do NOT sell protection

✓ Premiums will increase—collect them

IF VOLATILITY COLLAPSES

✓ Accept lower premiums temporarily

✓ Do NOT chase yield with riskier strikes

✓ Patience beats force

ANNUAL MAINTENANCE

✓ Roll Jan 2027 put to Jan 2028 in December 2026

✓ Use collected premiums to pay for roll

✓ Review allocation, rebalance if needed

RED FLAGS (STOP AND REASSESS)

✗ Selling calls below cost basis without protection

✗ Trading outside SPY/QQQ

✗ Skipping weeks to “wait for better prices”

✗ Deviating from 20–30 delta range

Chapter 12: Your First 30 Days (Implementation Guide)

Chapter 12: Your First 30 Days (Implementation Guide)

This chapter walks you through launch, step by step.

Week 1: Setup

Day 1–2: Capital Allocation

  • Determine total capital for strategy
  • Calculate 65% SPY / 35% QQQ split
  • Confirm broker allows: stock purchase, long put purchase, covered call sales

Day 3: Purchase Shares

  • Buy SPY in 100-share blocks
  • Buy QQQ in 100-share blocks
  • Use limit orders during market hours

Day 4: Purchase Protection

  • Buy Jan 2027 SPY put, 5–8% OTM
  • Buy Jan 2027 QQQ put, 5–8% OTM
  • Record strikes and cost for tracking

Day 5: First Call Sale

  • Identify Friday expiration
  • Select 20–30 delta strike
  • Sell to open, collect premium
  • Record trade

Week 2: First Expiration

Friday Close

  • If calls expire worthless: Keep premium, shares remain
  • If calls assigned: Shares sold, premium kept

Monday (if assigned)

  • Repurchase shares at market
  • Sell next Friday’s call immediately
  • No hesitation

Week 3: Build Rhythm

  • Sell calls Monday–Wednesday
  • Track weekly premium
  • Avoid selling on Fridays (time decay minimal)

Week 4: Review & Adjust

  • Calculate total premium collected
  • Confirm protection still in place
  • Assess comfort with process

By Day 30, you should have:

  • 4 weeks of premium income
  • Clear weekly routine
  • Confidence in mechanics

Chapter 13: Full 12-Month Cash Ledger ($250k & $500k)

This section shows what checks actually look like, week by week, at scale.

$250,000 Portfolio ($165k SPY / $85k QQQ)

MonthWeekSPY PremiumQQQ PremiumWeekly TotalMonthly Total
Jan1$950$750$1,700
Jan2$980$770$1,750
Jan3$920$730$1,650
Jan4$990$800$1,790$6,890
Feb1$1,020$820$1,840
Feb2$1,050$850$1,900
Feb3$980$780$1,760
Feb4$1,000$800$1,800$7,300
Mar1$1,150$950$2,100
Mar2$1,200$1,000$2,200
Mar3$1,100$900$2,000
Mar4$1,180$980$2,160$8,460
Apr1$900$720$1,620
Apr2$880$700$1,580
Apr3$950$750$1,700
Apr4$920$730$1,650$6,550
May1$1,080$880$1,960
May2$1,100$900$2,000
May3$1,050$850$1,900
May4$1,070$870$1,940$7,800
Jun1$1,000$800$1,800
Jun2$1,020$820$1,840
Jun3$980$780$1,760
Jun4$1,010$810$1,820$7,220
Jul1$950$750$1,700
Jul2$970$770$1,740
Jul3$990$790$1,780
Jul4$1,000$800$1,800$7,020
Aug1$1,180$980$2,160
Aug2$1,220$1,020$2,240
Aug3$1,150$950$2,100
Aug4$1,200$1,000$2,200$8,700
Sep1$1,020$820$1,840
Sep2$1,000$800$1,800
Sep3$1,050$850$1,900
Sep4$1,030$830$1,860$7,400
Oct1$1,100$900$2,000
Oct2$1,150$950$2,100
Oct3$1,080$880$1,960
Oct4$1,120$920$2,040$8,100
Nov1$980$780$1,760
Nov2$1,000$800$1,800
Nov3$950$750$1,700
Nov4$970$770$1,740$7,000
Dec1$1,020$820$1,840
Dec2$1,050$850$1,900
Dec3$980$780$1,760
Dec4$1,010$810$1,820$7,320

12-Month Total: $89,760

Average Weekly: $1,726

Annualized Yield: ~36%

$500,000 Portfolio ($325k SPY / $175k QQQ)

MonthWeekSPY PremiumQQQ PremiumWeekly TotalMonthly Total
Jan1$1,900$1,500$3,400
Jan2$1,960$1,540$3,500
Jan3$1,840$1,460$3,300
Jan4$1,980$1,600$3,580$13,780
Feb1$2,040$1,640$3,680
Feb2$2,100$1,700$3,800
Feb3$1,960$1,560$3,520
Feb4$2,000$1,600$3,600$14,600
Mar1$2,300$1,900$4,200
Mar2$2,400$2,000$4,400
Mar3$2,200$1,800$4,000
Mar4$2,360$1,960$4,320$16,920
Apr1$1,800$1,440$3,240
Apr2$1,760$1,400$3,160
Apr3$1,900$1,500$3,400
Apr4$1,840$1,460$3,300$13,100
May1$2,160$1,760$3,920
May2$2,200$1,800$4,000
May3$2,100$1,700$3,800
May4$2,140$1,740$3,880$15,600
Jun1$2,000$1,600$3,600
Jun2$2,040$1,640$3,680
Jun3$1,960$1,560$3,520
Jun4$2,020$1,620$3,640$14,440
Jul1$1,900$1,500$3,400
Jul2$1,940$1,540$3,480
Jul3$1,980$1,580$3,560
Jul4$2,000$1,600$3,600$14,040
Aug1$2,360$1,960$4,320
Aug2$2,440$2,040$4,480
Aug3$2,300$1,900$4,200
Aug4$2,400$2,000$4,400$17,400
Sep1$2,040$1,640$3,680
Sep2$2,000$1,600$3,600
Sep3$2,100$1,700$3,800
Sep4$2,060$1,660$3,720$14,800
Oct1$2,200$1,800$4,000
Oct2$2,300$1,900$4,200
Oct3$2,160$1,760$3,920
Oct4$2,240$1,840$4,080$16,200
Nov1$1,960$1,560$3,520
Nov2$2,000$1,600$3,600
Nov3$1,900$1,500$3,400
Nov4$1,940$1,540$3,480$14,000
Dec1$2,040$1,640$3,680
Dec2$2,100$1,700$3,800
Dec3$1,960$1,560$3,520
Dec4$2,020$1,620$3,640$14,640

12-Month Total: $179,520

Average Weekly: $3,452

Annualized Yield: ~36%

Key Observations

Volatility matters: March and August show higher premiums (earnings, macro events)

Compression happens: April and November show lower premiums (calm periods)

Income persists: Even low months generate meaningful cash

Scale is linear: Doubling capital doubles weekly checks

Chapter 14: Tax Considerations and Account Structure

Tax Treatment

Short-term capital gains: Weekly calls held <1 year taxed as ordinary income

Long-term protection: Jan 2027 puts may qualify for long-term treatment

Wash sale rules: Repurchasing shares after assignment can trigger wash sales

Consult a tax professional. This strategy generates frequent transactions.

Optimal Account Types

IRA / Roth IRA: Tax-deferred or tax-free growth, ideal for active strategies

Taxable accounts: Manageable but generates annual tax drag

Avoid: 401(k) plans typically restrict options trading

Chapter 15: Common Mistakes and How to Avoid Them

Mistake 1: Selling Calls Too Close

Chasing an extra $50/week by selling 40-delta calls results in constant assignment and opportunity cost.

Fix: Stay disciplined at 20–30 delta.

Mistake 2: Skipping Protection

“I’ll buy the put next week when it’s cheaper.”

Next week, the market crashes. You panic-sell at the bottom.

Fix: Buy protection on Day 1. Always.

Mistake 3: Trading Single Stocks

“Apple has better premiums than SPY.”

One earnings miss, one supply chain issue, one CEO departure—gone.

Fix: SPY and QQQ only. Period.

Mistake 4: Chasing Yield in Low Volatility

Premiums compress. You sell closer strikes or shorter expirations to compensate.

Fix: Accept lower income temporarily. Forcing yield creates risk.

Mistake 5: Abandoning the System in Drawdowns

Market drops 15%. You stop selling calls, waiting for “recovery.”

Income stops. Volatility was high. You missed the payday.

Fix: Sell calls every week, regardless of market direction.

Chapter 16: When to Exit or Modify

Exit Scenarios

Life changes: Sudden cash need, health emergency

Risk tolerance shift: Strategy no longer aligns with comfort level

Sustained premium collapse: Multi-year low volatility environment

How to Exit Cleanly

  1. Stop selling new calls
  2. Let existing calls expire or buy them back
  3. Sell long puts (recapture remaining time value)
  4. Sell shares

Do not exit in panic. Exits should be planned, not reactive.

Modification Scenarios

Capital increase: Add proportional SPY/QQQ blocks

Capital decrease: Reduce positions proportionally

Volatility regime change: Adjust delta range (lower delta in high vol, higher delta in low vol)

APPENDICES

Appendix A: Compliance-Safe Language for Advisors

If you are a financial advisor presenting this strategy to clients, use the following framing:

“This is an income-focused collar strategy utilizing broad market ETFs. It prioritizes cash flow generation through systematic covered call writing, with downside protection via long-dated puts. Expected outcomes include reduced volatility relative to buy-and-hold equity, with income yields in the 30–45% range under normal market conditions. Upside participation is capped. This strategy is suitable for income-focused investors with moderate to high risk tolerance who understand options mechanics.”

Key disclosures to include:

  • Options involve substantial risk and are not suitable for all investors
  • Past performance does not guarantee future results
  • Premium income is not guaranteed and fluctuates with market volatility
  • Strategy may underperform in strong bull markets
  • Tax implications vary by account type and individual circumstances

Appendix B: Broker Requirements and Platform Setup

Minimum Broker Requirements

Level 3 options approval: Required for covered calls and protective puts

Commission structure: Low or zero commissions on options (critical for weekly trading)

Platform features needed:

  • Real-time quotes
  • Options chains with Greeks visible
  • One-click covered call entry
  • Mobile access for weekly management

Test the platform with paper trading before committing capital.