more 'What Works'

So, to summarize, we have $250,000 cash in a portfolio. It is in a regular 2:1 margin account with stock, option and futures permissions. We use some of the cash to buy about $500,000 worth of 'stuff' which becomes our 'Core Portfolio".

This portfolio is made up of roughly equal portions of 5 different underlyings all reflecting our opinion of which direction they will move - knowing full well that it is just a guess and will, more than likely, be 50/50 over time.To reduce the Cost Basis of this portfolio (which is the only real way to give us a resonable chance to make money over time, since each is just a 50/50 bet) we sell options against our positions.

Selling premium gives us the dual advantage of 1. Reducing Cost basis and 2. utilizing the 'risk premium' obtained by selling rather than buying options (this is due to the fact that seller is assuming risk, so must get paid)

We are looking for about 2%/month cost basis reduction from these sales. In addition we take some of the 'extra' money and trade around our core - using both undefined and defined risk strategies. The hope is to further boost our Return on Capital in a way that limits our exposure to Risk of Ruin (where we trade ourselves into being out of money and hence out of business)!

The approach will work for all acount types and sizes - just maybe more or less efficiently that outlined previously.

Portfolio Margin - In an a larger account of over $125,000, you may qualify for 'Portfolio Margining' which will give you more bang for your buck. It is basically a margin account where the broker allows you increased ability to have one position offset another - essentially increasing your margin and RoC. The previous example of controlling $500,000 with $190,000 of capital could be achieved with maybe $60,000. (see the TopDogs episode metioned previously for more details).

Conversley, if you have no margin capability such as in some retirement accounts and no access to futures (where leverage can be closer to 20 times!) than it is much harder - but not impossible - to make it work. Your goals will just have to be adjusted to reflect the reality of the odds.

A cash only account would need $250,000 to control $250,000. No 'extra' cash for extra trades. No 'extra' cash to pump up occurences to normalize the odds. The target return on a 1SD option sale would be 1%/mo or 12%/year. It is harder to get enough diversification.

For my own account, I tend to shoot for a compromise of 1SD sales and ATM sales. I am willing to do more work in the management, so am looking for between %1 and %2 per trade or about an average of 1.5% with maybe 40% needing some management. I think %18/year is a lofty, but doable, goal for an account with these constraints.

And remember, The Core can go up and down, so the 18% is income. The actual portfolio may still go down in value - and must be managed throughout.