Building an Options Super Structure
Our family office’s portfolio is theta positive for one reason: Time is on our side.
Every day the sun rises our balance does, too.
First, we built and ran the options machine. Then, we upgraded it.
Now we are getting into progressively more complicated Options strategies and tactics.
And that’s a good thing, having more arrows in your quiver. This offers you different armies with unique capabilities and ultimately, more ways to win war.
The modern market is a siege engine.
It is designed to surround you. It is designed to starve you. It is designed to breach your walls and extract your capital.
Most of you are standing in the middle of this battlefield butt naked. You buy a stock. You hope it goes up. Or worse, you buy a lottery ticket option and pray the algorithm doesn’t crush you.
This is not investing.
To survive the siege, you must stop acting like a civilian.
You must build a Citadel. Your capital is not money. It is masonry.
Your portfolio is not a collection of tickers. It is a fortress.
And options?
Options are not gambling chips. They are the levers, the pulleys, and the ballistics systems of your defense.
Most people fear options because they fear complexity.
But you are different. You are ready to engineer your success.
You are ready to learn about selling puts and calls to capture theta on both sides of the strike price, but with ‘insurance’ in the form of puts and calls that are bought to protect from what happens when the price of the asset leaves “containment”.
This is such a trade:
In this series we are going to learn more about the Iron Condor along with other multi-leg structures like the Broken Wing Butterfly and Jade Lizard.
Today, we are going to dismantle six structures that underly these more complex multi-leg options trades.
…so you can add them to your own wealth engines!
To have some fun (and make this easier to digest) we’re going to use business scenarios to explain how each of these options strategies “work”.
The Cash Secured Put
The Business Metaphor: Imagine you are a specialized insurance company. You agree to insure a homeowner’s house (the stock) against a drop in value.
The Setup: The homeowner pays you a premium upfront. You must keep enough cash in the bank (the “Cash Secured” part) to buy the house if the “disaster” happens.
The Outcome:
No Disaster (Stock stays up): The policy expires. You keep the premium as pure profit.
Disaster (Stock drops): You are contractually obligated to buy the house at the insured price. Now you own a “distressed asset” that you must hold or fix up to sell later (often pivoting to selling Covered Calls - called The Wheel).
You have been lied to about “buying the dip.”
The average investor sees a falling price and panics.
Or they catch a falling knife and bleed out.
They lack structure.
They lack a floor.
The Cash Secured Put is the bedrock of the Citadel.
It is how you acquire territory on your own terms.
Here’s how it works: you identify an asset → a block of stone you want to add to your wall.
But you refuse to pay the market’s current inflated price.
So, you write a contract.
You promise to buy that stone only if it falls to your price.
And for this promise? You get paid.
The Architecture:
You sell a Put option at a strike price below the current market value. You hold the cash equivalent in your vault (the collateral).
The Outcome:
If the market stays high, you keep the premium. You collected rent on your own patience.
If the market falls to your strike, you buy the asset.
But you buy it at the price you demanded, minus the premium you were paid.
This is not “losing.”
This is procurement.The civilian sees a stock drop and cries. The Wealth System builder sees a stock drop and executes a pre-planned acquisition.
Stop chasing price.
Force price to come to you. Make the market pay you for the privilege of selling you its assets. Use limit orders. Sell puts to lower your acquisition basis. Control your entry.
Exit Scenarios:
Stock stays above strike: The option expires worthless. You keep the full premium as profit.
Stock drops below strike: You are assigned the shares. Your effective entry price is the Strike Price minus the Premium received. You now own the stock and can hold or sell Covered Calls against it (The “Wheel Strategy”).
Early Exit: You can buy back the put (Buy to Close) before expiration to lock in a percentage of the profit or stop a loss.
Probability of Profit (PoP) & Return on Equity (ROE):
PoP: High. You profit if the stock goes up, stays flat, or drops slightly (but stays above the strike).
ROE: Moderate. The return is capped by the premium received, and it requires significant capital (full cash collateral) to secure the trade, lowering the percentage return compared to leveraged strategies.
The Bull Put Spread
The Business Metaphor: You are still that insurance provider, but you are a small firm with limited capital. You want to collect premiums, but you can’t afford to pay out if the entire market crashes.
The Setup:
Sell Policy: You insure a client’s house (Sell Put).
Buy Re-Insurance: You immediately turn around and buy a “catastrophe” policy from a bigger insurance company (Buy Lower Strike Put) to cover yourself if the losses get too deep.
The Outcome: You make a smaller profit (the difference between the premium you collected and the premium you paid). However, if the house value goes to zero, the big insurance company steps in to cover the massive loss. Your risk is strictly capped.
Sometimes, you cannot afford to hold the line alone.
Sometimes, the enemy (volatility) is too heavy.
Buying the asset outright would expose your flank to catastrophic failure.
You need a shield.
You need defined risk.
You need the Bull Put Spread. This is a structural reinforcement.
It’s a Credit Spread. It generates income and it installs a hard floor on how much damage you can take.
The Architecture:
You sell a Put option (creating an obligation).
But immediately, you buy a lower-strike Put option (creating protection).
The sold Put collects premium. This is your income.
The bought Put costs money. This is your insurance.
The difference is your net credit.
The Mechanic:
Think of this as a double wall.
The first wall (the Short Put) is designed to stop the arrows and collect the toll.
But if the siege engine breaches that first wall, the second wall (the Long Put) stands firm.
The market can crash to zero.
The world can burn.
But your loss stops at the second wall.
The amateur sells naked puts and gets wiped out by a Black Swan event.
The Architect builds a Shield Wall.
He accepts slightly lower income for the guarantee of survival. He trades upside greed for structural integrity.
This is how you grind out a victory.
Inch by inch. Credit by credit.
The rich guys and girls at the end of the game are rich because they survived. You never hear about ones who bust out.
Play smart. Define your risk wherever possible.
Exit Scenarios:
Stock stays above short strike: Both options expire worthless. You keep the full net credit (Max Profit).
Stock falls between strikes: You incur a loss, calculated: (Short Strike - Stock Price) - Net Credit.
Stock falls below long strike: You reach Max Loss, which is capped at the width of the strikes minus the credit received.
Probability of Profit (PoP) & Return on Equity (ROE):
PoP: High. Similar to the CSP, the stock can fall somewhat and the trade still wins.
ROE: High. Because your risk is defined (limited to the spread width), the margin requirement is much lower than a CSP, leading to a potentially higher percentage return on the capital risked.
This is one of my favorite trading strategies in options. I write at least 1 of these every week across my book.
The next one is higher-risk, but it generates a much bigger return on equity.
The Short Strangle
Now we move from defense to extraction.
The market does not always attack head-on.
Often, it wanders. Eating up time can be it’s greatest attack.
It moves sideways. It churns up and chops down and stays put, at the end of months. This kills option buyers, it disheartens long-term investors…
It confuses the weak.
In a sideways market, the directional trader starves.
They need movement to eat. But the Wealth System Architect feeds on the passage of time.
The Business Metaphor: You own a toll road that runs through the middle of a city. You are betting that traffic (the stock price) will stay in the main lanes and not veer off-road.
The Setup: You set up toll booths on the far left lane (Call side) and the far right lane (Put side). You collect fees from drivers just for passing through.
The Outcome:
Traffic flows normally: Cars stay in the middle. You collect tolls from everyone and do nothing.
Car crashes through the barrier: If a car veers wildly off-road (stock skyrockets or crashes), it smashes your toll booth. You are responsible for all the damages, which can be unlimited depending on how bad the wreck is. Loss of financial life is possible.
The Architecture:
You sell an Out-of-the-Money Call (the ceiling).
You sell an Out-of-the-Money Put (the floor).
You collect premium from both sides.
This is a less-sophisticated version of that Iron Condor we looked at earlier. It offers a MUCH larger return profile, at even greater risks.
The Mechanic:
You are selling pure volatility.
You are betting on the containment of chaos.
If the price stays within your walls, you keep everything.
You are purely harvesting Theta (time decay).
Every day the sun rises and the market does nothing, your fortress grows stronger.
The Danger:
This is an undefined risk strategy. Read that again! It means: you can lose it all.
If the enemy breaches the wall with massive force (a violent rally or a catastrophic crash) you are deeply exposed.
The walls can crumble.
And they can crumble from either side. The stock can rocket to the moon or crash to $0. Technically that means you have just the risk of losing it all (to the downside) but if the asset has a hyperbolic upside pricing event (Bitcoin, Silver, Nvidia, etc..) it can wipe you out in the blink of the an eye.
It requires active management.
It requires the discipline to roll the walls (adjust strikes) when the pressure mounts.
Do not build this structure if you cannot guard it.
But if you can?
It is the most efficient generator of yield in a flat world.
For this reason, I think we’ve seen big explosions in Bitcoin and Silver recently. Massive funds and banks, maybe even entire countries, got caught selling Theta without insurance of their own… and blew up.
Therefore, the Short Strangle is not for the novice.
Exit Scenarios:
Stock stays between strikes: Both options expire worthless. You keep the full premium (Max Profit).
Stock breaches a strike: You begin to lose money.
If it rises sharply, you have unlimited risk (short call).
If it falls sharply, you have substantial risk (short put).
Management: Traders often “roll” the untested side (e.g., roll the Put up if the stock goes up) to collect more credit and reduce delta risk.
Probability of Profit (PoP) & Return on Equity (ROE):
PoP: Very High. Because the strikes are wide, the stock can move significantly in either direction without causing a loss.
ROE: High. The margin efficiency is excellent, but “tail risk” is significant. A “black swan” event can wipe out months of gains.
Again, don’t use this without extreme understanding of the structural and market risks.