Monthly options income strategies have been a cornerstone of options trading for decades. While weekly options get a lot of attention, monthly cycles offer distinct advantages for traders seeking steady, predictable cash flow with less active management. This guide will show you how to build a reliable monthly income system.
Why Choose Monthly Options Over Weekly?
Monthly options expire on the third Friday of each month and offer several benefits compared to their weekly counterparts:
Monthly advantage: With 30-45 days until expiration, monthly options give your trades more time to work out. You can collect meaningful premium while maintaining wider profit zones and needing fewer adjustments.
- Higher absolute premium: More time value means larger credits per trade
- More room for error: Wider strikes can be used while still collecting decent premium
- Less management: Fewer trades per year means less screen time
- Better for busy traders: Check positions weekly instead of daily
- More liquidity: Monthly options typically have tighter spreads than weeklies
Optimal Timing for Monthly Options
The sweet spot for selling monthly options is 30-45 days to expiration (DTE). This timeframe balances premium collection with probability of success.
Why 30-45 DTE?
- Theta decay begins accelerating around 45 DTE
- Enough time for positions to recover from adverse moves
- Premium is still meaningful without excessive risk
- Gives you time to roll or adjust if needed
The Monthly Trading Calendar
Most monthly options traders follow this rhythm:
- Week 1 (45 DTE): Open new positions for next month's expiration
- Week 2-3: Monitor and manage existing positions
- Week 4: Close profitable positions, roll losers to next month
- Expiration week: Final adjustments, let winners expire
Best Monthly Income Strategies
1. Monthly Iron Condors
The iron condor is perhaps the most popular monthly income strategy. It profits when the underlying stays within a defined range.
Example: 45-DTE Iron Condor on SPY
SPY is trading at $480. You open a 45-day iron condor:
- Sell $450 put, buy $445 put (put spread credit: $0.85)
- Sell $510 call, buy $515 call (call spread credit: $0.90)
- Total credit: $1.75 ($175 per contract)
- Maximum risk: $3.25 ($325 per contract)
- Breakeven range: $448.25 to $511.75
- Probability of profit: approximately 70%
2. Monthly Credit Spreads
If you have a directional bias, monthly credit spreads offer excellent risk-reward. They give you more room than weekly spreads while still collecting solid premium.
Example: 30-DTE Put Credit Spread on AAPL
AAPL is trading at $185. You are bullish for the next month:
- Sell $170 put (30 DTE) for $1.50
- Buy $165 put (30 DTE) for $0.90
- Net credit: $0.60 ($60 per contract)
- Maximum risk: $4.40 ($440 per contract)
- AAPL can drop 8% and you still profit
3. Monthly Covered Calls
Selling 30-45 DTE covered calls on stocks you own provides consistent income with better premium than weeklies.
4. Monthly Cash-Secured Puts
Sell monthly puts on quality stocks to collect premium while potentially acquiring shares at a discount.
5. Monthly Strangles and Straddles
For larger accounts, selling monthly strangles can generate significant income, though this requires careful risk management.
Strike Selection for Monthly Options
Choosing the right strikes is critical for monthly income success:
Delta-Based Selection
- Conservative (10-15 delta): Higher probability but lower premium
- Moderate (20-25 delta): Good balance of risk and reward
- Aggressive (30-35 delta): More premium but requires closer management
Technical Analysis
Use support and resistance levels to inform your strike selection:
- Sell puts below major support levels
- Sell calls above major resistance levels
- Consider 200-day moving average as a reference point
Managing Monthly Positions
Profit Taking Rules
Do not hold until expiration. Take profits when available:
- 50% rule: Close when you have captured 50% of maximum profit
- 21 DTE rule: Consider closing around 21 days to expiration
- Time-based: Close at 50% profit or 21 DTE, whichever comes first
When to Adjust or Roll
Monthly options give you time to make adjustments:
- If a short strike is breached, consider rolling out and away
- Roll for a credit whenever possible
- Do not roll more than once - accept the loss if your thesis was wrong
Defense Strategies
- Roll the tested side: Move the threatened spread to next month
- Close the untested side: Lock in profit on the winning side
- Convert to a different structure: Turn an iron condor into a credit spread
Position Sizing for Monthly Income
Proper position sizing ensures longevity in options trading:
Golden rule: Never risk more than 5% of your account on any single monthly trade. With iron condors and spreads, calculate risk as the maximum loss minus credit received.
- Start with 1-2% risk per trade while learning
- Scale up to 3-5% once you have proven consistency
- Spread risk across 3-5 different underlyings
- Avoid concentrating in one sector or correlated assets
Monthly Income Expectations
Set realistic expectations for your monthly options income:
- Conservative: 2-4% monthly return on capital at risk
- Moderate: 4-6% monthly return on capital at risk
- Aggressive: 6-10% monthly return on capital at risk
Remember, these are returns on capital at risk, not on your entire account. If you risk 20% of your account per month and target 5% return on that capital, your account return is 1% monthly.
Building a Monthly Income Portfolio
Diversification is key to consistent monthly income:
- Index ETFs: SPY, QQQ, IWM for broad market exposure
- Sector ETFs: XLF, XLE, XLK for sector diversification
- Large-cap stocks: AAPL, MSFT, AMZN for individual positions
- Commodity ETFs: GLD, SLV for non-correlated exposure
Track Your Monthly Options Performance
Pro Trader Dashboard helps you analyze your monthly options trades. See your win rate by expiration cycle, track premium collected versus lost, and identify your most profitable strategies.
Common Monthly Trading Mistakes
- Overleveraging: Trading too many contracts relative to account size
- Ignoring earnings: Always check if a stock reports during your trade window
- Set and forget: Monthly trades still need weekly check-ins
- Holding to expiration: Close winners early to free up capital
- No exit plan: Define your profit and loss targets before entering
Summary
Monthly options income strategies offer an excellent balance of premium collection and manageable risk. By focusing on 30-45 DTE trades, using proper position sizing, and following disciplined management rules, you can build a sustainable income stream. Start with paper trading, graduate to small positions, and scale up as you develop consistency.
Want to learn more income strategies? Explore weekly options income for more frequent trades, or discover the iron condor income strategy in detail.