A Real-World Case Study in Systematic Options Income

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⚠️ IMPORTANT DISCLAIMER ⚠️

THIS CONTENT IS FOR EDUCATIONAL PURPOSES ONLY AND IS NOT INVESTMENT ADVICE.

The information presented in this article describes options trading strategies and one trader’s real position for educational and illustrative purposes only. This is not a recommendation to buy or sell any security or to adopt any investment strategy.

Options trading involves substantial risk of loss and is not suitable for all investors. You can lose some or all of your invested capital. Past performance does not guarantee future results. The examples shown represent specific market conditions and individual results that may not be repeatable.

Before implementing any options strategy:

• Consult with your qualified financial advisor or investment professional
• Ensure you fully understand the risks involved
• Verify the strategy aligns with your financial goals, risk tolerance, and investment timeline
• Obtain appropriate options trading approval from your broker
• Paper trade extensively before risking real capital

The author is not a registered investment advisor, broker-dealer, or financial planner. This article does not constitute professional financial, investment, tax, or legal advice. The strategies discussed may not be appropriate for your specific situation.

Do your own due diligence. Consult your investment adviser. Trade at your own risk.

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What if you could generate 462% annual returns with downside protection and sleep soundly at night?

Most retirees are told they need to choose: either accept bond-like returns of 4-6% annually, or take equity risk with potential 50%+ drawdowns during market crashes.

There’s a third way.

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The Problem with Traditional Retirement Income

The Bond Dilemma

• Treasury yields: 4-5%
• Corporate bonds: 5-7%
• To generate $5,000/month ($60,000/year), you need $1,000,000-$1,500,000 in capital

The Stock Dilemma

• S&P 500 dividends: ~1.5%
• High dividend stocks: 3-5%
• To generate $5,000/month in dividends, you need $1,200,000-$4,000,000
• Plus you face unlimited downside risk

The Covered Call Trap

• “Enhance” stock returns by 2-5% annually
• Still requires massive capital ($500,000-$800,000)
• Caps your upside
• Offers NO downside protection
• You still lose 30-50% in a crash

What if there’s a way to generate the same $5,000/month with just $129,800 in capital, with defined downside protection, and the ability to profit even in a market crash?

Note: This is an educational case study, not a recommendation. Consult your financial advisor.

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Introducing: The Protected Synthetic Income Strategy

This is not theory. This is a real trade executed in February 2025 by a 70+ year-old systematic trader who demanded three non-negotiables:

1. Catastrophe protection — No retirement-ending losses
2. Positive carry — Generate income while protected
3. Capital efficiency — No million-dollar capital requirements

Here’s exactly what he built, and how the strategy works for educational purposes.

REMINDER: This case study is for educational illustration only. Do not replicate without consulting your investment advisor and ensuring you understand all risks involved.

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The Anatomy of the Trade (Real Numbers – Educational Example)

Starting Point: Verizon (VZ) at $46.98

Why Verizon was chosen for this example:

• Boring telecom utility
• Stable, mean-reverting price action
• High implied volatility (options are “expensive”)
• Dividend aristocrat with 6%+ yield
• Defensive sector (performs in recessions)

Note: Similar strategies could theoretically work on ANY stable, high-IV stock: AT&T, Exxon, Pfizer, Coca-Cola, etc. This does not constitute a recommendation to trade these securities.

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The Position Structure (Per $6,490 Unit – Educational Example)

Component 1: Synthetic Long Stock (LEAPS Calls)

20× $40 call options, 345 days to expiration

• Net cost: $3,690
• Provides leveraged exposure to VZ upside
• Controls 2,000 shares with just $3,690 capital
• Compare to buying 2,000 shares: $93,960 required

Component 2: Catastrophe Protection (Long Puts)

20× $45 put options, 345 days to expiration

• Net cost: $2,800
• Creates a hard floor — losses capped below $39
• Unlike stock ownership, you cannot lose everything
• This is retirement-safe protection

Component 3: The Income Engine (Weekly Short Calls)

Sell 20× out-of-the-money calls every Monday

• Weekly premium: $600 ($0.30 per contract)
• Annual income: $30,000
• This is the systematic cash flow concept

Total capital per unit: $6,490
Annual income per unit: $30,000
Theoretical annual yield: 462%

IMPORTANT: These are historical results from one specific trade during specific market conditions. Your results will vary. Past performance does not guarantee future results.

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How the Protection Works (Educational Stress Test)

Let’s analyze this with various scenarios for educational purposes.

Scenario 1: Market Crash — VZ Drops to $35 (-25%)

What would happen to the position:

• LEAPS calls: Go to zero — Loss: $3,690
• Protective puts: Worth $10 each — Gain: $17,200
• Weekly income (collected before crash): $7,500

Hypothetical Total P/L: +$21,010 profit
Hypothetical Return: +324%

This is a theoretical example. Actual results would depend on timing, volatility, and execution. You could still lose money in practice.

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Scenario 2: Sideways Market — VZ Stays $45-48

Theoretical outcome:

• LEAPS calls: Slight appreciation — Gain: $10,310
• Protective puts: Decay to near-zero — Loss: $1,800
• Weekly income (49 weeks): $29,400

Hypothetical Total P/L: +$37,910
Hypothetical Return: +584%

This assumes consistent execution over 49 weeks with no missed weeks, no assignment problems, and stable volatility. Real-world results will differ.

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Scenario 3: Bull Market — VZ Rallies to $52 (+11%)

Theoretical outcome:

• LEAPS calls: Deep in the money — Gain: $20,310
• Protective puts: Expire worthless — Loss: $2,800
• Weekly income: $29,400

Hypothetical Total P/L: +$46,910
Hypothetical Return: +723%

This represents best-case scenario. Your actual results may be significantly lower or you could experience losses.

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The Economic Floor: Where Loss Could Occur

Theoretical breakeven point: VZ would need to drop below $38 AND stay there for weeks while implied volatility collapses to zero.

Estimated probability in this example: Less than 1%

Even in the theoretical “worst case” scenario (VZ at $42, vol dies immediately):

• You might still collect $5,000-7,000 in weekly income
• Calls might hold some value
• Puts might provide offset
• Theoretical profit: 77%+

CRITICAL WARNING: This is not risk-free. These are hypothetical scenarios based on assumptions that may not hold. You can lose money. Actual outcomes depend on market conditions, execution quality, timing, volatility changes, and numerous other factors. Always consult your financial advisor before trading.

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Scaling to $5,000/Month: The Hypothetical Math

Income Target

$5,000 per month = $60,000 annually

Per-Unit Economics (Theoretical)

Each $6,490 unit might generate:

• Weekly income: $600
• Annual income: $30,000

Hypothetical Capital Required

$60,000 ÷ $30,000 per unit = 2 units

Theoretical total capital required: 2 × $6,490 = $12,980

IMPORTANT CLARIFICATION: These numbers represent one specific historical example during specific market conditions. They are not projections or predictions of future results. Your actual capital requirements will likely be higher, and your income lower. Market conditions change. Volatility changes. Commission costs, slippage, and taxes will reduce actual returns. This is an educational example, not a guarantee.

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The Catch (Because There’s Always a Catch)

This Is NOT Passive Income

Weekly commitment required:

• 25 minutes every Monday morning
• Sell 40 weekly call options (2 units)
• Monitor position health
• Track cumulative income

This is active income harvesting, not “set and forget.”

You Must Follow Discipline

Exit rules would be non-negotiable in this strategy:

✅ Exit Rule 1: When you’ve collected a target amount in realized income
✅ Exit Rule 2: Never hold too close to expiration (theta acceleration)
✅ Exit Rule 3: If weekly premium drops below threshold for consecutive weeks, exit immediately

If you violate exit rules in practice, you could give back significant gains or turn profits into losses.

Volatility Risk

If implied volatility collapses:

• Weekly income could drop from $600 → $300 per unit or lower
• Annual yield could drop from 462% → 230% or lower
• Strategy effectiveness could be severely reduced

This strategy depends on persistent volatility, which is not guaranteed.

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The Risk Comparison (Educational Context)

Strategy	Hypothetical Capital for $5k/mo	Potential Max Loss	Typical Recovery Time	Complexity
Protected Synthetic	$12,980*	Variable**	Variable	High
Treasury Bonds	$1,000,000	~5%	3-5 years	Low
Dividend Stocks	$1,200,000	-50%+	5-10 years	Low
Covered Calls	$500,000	-45%+	5-10 years	Medium
Naked Puts	$0 (margin)	-100%	Never	Very High

*Based on one specific historical example; your capital requirements may differ significantly
**Depends on position sizing, strikes chosen, market conditions, and execution

The protected synthetic strategy in this example showed higher capital efficiency, but also requires significantly more skill, knowledge, time commitment, and carries substantial risk. Consult your financial advisor to determine appropriate strategies for your situation.

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Real-World Implementation: Step-by-Step (Educational Framework)

REMINDER: This is an educational framework only. Do not implement without:

1. Consulting your financial advisor
2. Obtaining proper options trading approval
3. Paper trading for at least 90 days
4. Understanding you can lose money

Step 1: Choose Your Stock (Educational Criteria)

Hypothetical required characteristics:

• Market cap >$20 billion (liquidity)
• Implied volatility >20% (need premium)
• Beta <1.2 (stability)
• Weekly options available (critical)
• Dividend yield >3% (stability signal)

Example candidates (NOT recommendations):

• Verizon (VZ)
• AT&T (T)
• Exxon Mobil (XOM)
• Pfizer (PFE)
• Coca-Cola (KO)
• Procter & Gamble (PG)

Avoid in this strategy framework:

• Growth stocks (too volatile)
• Meme stocks (unpredictable)
• Stocks without weekly options
• Anything with earnings in next 30 days

Consult your financial advisor about appropriate securities for your situation.

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Step 2: Build the Position (Educational Example Entry)

For each hypothetical $6,490 unit:

1. Buy 20× LEAPS calls (example)
   • Strike: 15% below current price
   • Expiration: 12-18 months out
   • Target cost: ~$3,500-4,000
2. Buy 20× protective puts (example)
   • Strike: 3-5% below current price
   • Same expiration as calls
   • Target cost: ~$2,500-3,000
3. Sell first weekly calls (example)
   • 20 contracts
   • Strike: 2-4% above current price
   • Target premium: $0.30+ per contract

Hypothetical total cost: $6,000-7,000 per unit

CRITICAL: These are example parameters from one historical trade. Market conditions change. Volatility changes. You must adjust based on current market conditions and consult your advisor. Do not blindly copy these parameters.

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Step 3: Weekly Execution (Educational Routine)

The hypothetical Monday Morning Routine (25 minutes):

9:00 AM – Market Check (5 min)

• Review stock price from Friday close
• Check implied volatility levels
• Note any overnight news

9:05 AM – Position Review (5 min)

• Calculate current mark-to-market value
• Update cumulative income spreadsheet
• Check if exit trigger hit

9:10 AM – Sell Weekly Calls (10 min)

• Open options chain
• Select strikes (example: 2-4% above current price)
• Sell appropriate number of contracts
• Target: Collect premium
• Execute order

9:20 AM – Documentation (5 min)

• Log premium collected
• Update total P/L
• Note days to expiration

Note: This is an idealized routine. Real-world execution involves commission costs, slippage, potential assignment issues, and market gaps that complicate the process. Consult your advisor.

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Step 4: Position Management (Ongoing Education)

Monthly check-in (15 minutes):

• Review cumulative income
• Assess if on track for exit trigger
• Verify puts still provide adequate protection
• Consider rolling adjustments

Quarterly adjustment:

• Review overall strategy effectiveness
• Consider position adjustments
• Evaluate whether to continue

IMPORTANT: This is active management. If you cannot commit to this schedule, do not attempt this strategy.

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Step 5: Exit the Trade (Critical Discipline in Example)

In the educational example, exits occurred when:

✅ Primary trigger: Collected target income per unit

✅ Hard stop: Time-based exit to avoid theta acceleration

✅ Emergency exit: If volatility collapsed or other conditions changed

Discipline on exits was cited as critical to protecting profits in the example.

In practice, determining proper exit timing requires experience, judgment, and market awareness. Consult your financial advisor.

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The Retirement Income Concept (Educational Illustration)

Hypothetical Scenario: Retiree Needs $5,000/Month

Traditional approach:

• Might need $1,000,000 in bonds/dividend stocks
• 4-6% safe withdrawal rate
• Exposed to inflation erosion
• Exposed to market crashes

Hypothetical Protected Synthetic approach in example:

Starting capital in example: $12,980

Year 1 in example:

• Deployed $12,980 into 2 units
• Generated $60,000 in income
• Exited with $40,000-44,000 total profit
• Used $5,000/month for 12 months

This was ONE trader’s result in SPECIFIC market conditions. This is NOT a projection of what you will achieve. Your results will almost certainly differ. You could lose money.

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The Diversification Concept (Risk Management Education)

Educational principle: Never put all capital in one stock.

For $5,000/Month Income Target (Hypothetical)

Two-stock approach example:

• Unit 1: One stable stock ($6,490)
• Unit 2: Different sector stock ($6,490)
• Hypothetical total: $12,980

Four-stock approach example:

• Four different sectors with smaller position sizes
• Same total capital, spread across positions

Theoretical benefit: If one sector has problems, other positions unaffected.

IMPORTANT: Diversification does not guarantee profit or protect against loss. Consult your advisor about appropriate diversification for your situation.

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What Could Go Wrong? (Honest Risk Education)

Risk 1: Volatility Collapse

What could happen:

• Implied volatility drops significantly
• Weekly premium falls substantially
• Income cut dramatically

Potential impact:

• Strategy becomes much less effective
• Returns drop significantly
• May no longer meet income needs

This is a real risk. Volatility can and does collapse unpredictably.

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Risk 2: Poor Timing/Execution

What could happen:

• Ignore exit rules
• Hold too long
• Theta decay accelerates
• Give back gains

Potential impact:

• Turn large profits into small profits
• Turn profits into losses
• Significant capital erosion

Discipline is critical. Most individual traders struggle with this.

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Risk 3: Stock-Specific Disaster

What could happen:

• Company scandal, dividend cut, bankruptcy risk
• Stock gaps down significantly overnight
• Position integrity compromised

Potential impact:

• Even with puts, could still lose money
• Need to exit immediately
• Loss of income from that position

Individual stock risk is real. Even “safe” stocks can have problems.

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Risk 4: Assignment and Management Issues

What could happen:

• Short calls go in-the-money
• Get assigned
• Need to manage complex situations
• Mistakes in re-establishing positions

Potential impact:

• Transaction costs
• Tracking errors
• Potential losses from mistakes

Active management creates opportunity for errors.

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Risk 5: Market Structure Changes

What could happen:

• Regulations change
• Options liquidity dries up
• Bid-ask spreads widen
• Trading costs increase

Potential impact:

• Strategy becomes unworkable
• Returns decrease substantially
• Increased costs eat profits

Market conditions can change. Past favorable conditions don’t guarantee future conditions.

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The Capital Efficiency Comparison (Educational Context)

Let’s compare hypothetical capital requirements side-by-side for $5,000/month retirement income:

Traditional Retirement Strategies

4% Safe Withdrawal Rate:

• Hypothetical need: $1,500,000
• Annual withdrawal: $60,000

Dividend Stock Portfolio (5% yield):

• Hypothetical need: $1,200,000
• Annual dividends: $60,000

Covered Calls on Stock (12% enhanced yield):

• Hypothetical need: $500,000
• Annual income: $60,000

Protected Synthetic Strategy Example

Capital in example: $12,980

• Income in example: $60,000
• This was one specific historical case

CRITICAL DISTINCTION: The traditional strategies are based on long-term historical averages across many market conditions and many participants. The Protected Synthetic example is ONE person’s result during ONE specific period. These are not comparable in terms of reliability, repeatability, or risk level.

Always consult your financial advisor about appropriate strategies for your situation and risk tolerance.

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Who This Strategy Education Is NOT For

Let’s be clear about who should avoid attempting this:

❌ People who can’t commit significant weekly time

• Requires consistent attention
• Missing weeks can be costly

❌ People uncomfortable with volatility

• Short-term fluctuations will occur
• Requires emotional discipline

❌ People who can’t follow complex rules

• Exit discipline is critical
• Rule violations lead to losses

❌ People with inadequate capital

• Need sufficient buffer
• Never use money you can’t afford to lose

❌ People without options knowledge

• This requires significant expertise
• Don’t learn on real money
• Paper trade extensively first

❌ People without professional guidance

• Consult your financial advisor first
• Ensure you understand all risks
• Verify suitability for your situation

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Who This Educational Content Is For

✅ Experienced options traders seeking advanced education ✅ People with qualified financial advisors to consult ✅ Traders comfortable with active management ✅ People willing to paper trade extensively first ✅ Those seeking to understand capital-efficient structures ✅ Individuals with appropriate risk tolerance and capital

Even if you fit this profile, consult your financial advisor before implementing any strategy described here.

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The Bottom Line (Educational Summary)

This Is Not Magic

It’s a structural approach based on:

• Options pricing inefficiencies
• Systematic premium collection
• Defined risk through protective puts
• The math of leverage and time decay

It works in some market conditions and fails in others:

• Volatility can collapse
• Theta can erode value
• Disasters happen
• Execution errors occur

This Is Not Risk-Free

You can lose money if:

• Market conditions change
• You make execution errors
• You ignore exit rules
• You use inappropriate position sizing
• Volatility collapses
• Individual stock disasters occur

Maximum loss in educational example: Theoretically small, but real-world losses could be substantial depending on market conditions and execution.

This Requires Expertise

Prerequisites:

• Advanced options knowledge
• Active management capability
• Emotional discipline
• Professional guidance
• Appropriate capital
• Realistic expectations

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⚠️ FINAL IMPORTANT DISCLAIMER ⚠️

THIS ARTICLE IS FOR EDUCATIONAL PURPOSES ONLY.

The case study presented describes one individual trader’s actual position and results during a specific time period in specific market conditions. These results:

• Are not typical
• Are not guaranteed
• Are not projections of future performance
• May not be repeatable
• Do not constitute a recommendation

Options trading involves substantial risk of loss. You can lose some or all of your invested capital. The strategies described are complex and suitable only for experienced traders with appropriate risk tolerance, capital, and professional guidance.

Before considering any options strategy:

1. Consult your qualified financial advisor or investment professional
2. Ensure you fully understand the risks
3. Verify the strategy is appropriate for YOUR specific financial situation
4. Obtain proper options trading approval from your broker
5. Paper trade extensively before risking real capital
6. Understand that past performance does not guarantee future results

The author:

• Is not a registered investment advisor
• Is not a broker-dealer
• Is not a financial planner
• Is not providing investment advice
• Is not recommending any specific securities or strategies

This content does not constitute professional financial, investment, tax, or legal advice.

Market conditions change. Volatility changes. What worked in the past may not work in the future. You are solely responsible for your own trading decisions and outcomes.

DO YOUR OWN DUE DILIGENCE. CONSULT YOUR INVESTMENT ADVISER. UNDERSTAND THE RISKS. TRADE AT YOUR OWN RISK.

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Educational Summary

This article explored an advanced options income strategy for educational purposes, using one trader’s real position as a case study. The key educational concepts covered:

1. Capital efficiency through synthetic positions and leverage
2. Risk management through protective puts and position sizing
3. Income generation through systematic premium selling
4. Discipline and exits as critical success factors
5. Realistic risk assessment including what can go wrong

Whether this or any strategy is appropriate for you depends entirely on your specific situation, risk tolerance, knowledge level, and financial goals.

Consult your financial advisor. Make informed decisions. Understand the risks.

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This educational content is provided for informational purposes only. Always seek professional guidance before making investment decisions.