Many would think that this trade has failed.

Shares have fallen and we have not had the chance to close the position for a profit.

I view the trade as a success so far because I sell put options with the hope of buying these great companies at a price that I find especially attractive (usually below the current closing prices). This way I get to build a position in a world-class business trading at a good price and get paid for the privilege (paid upfront in put option premium). Even though shares closed below the $50 share price and remain below that value today this trade is still showing a small gain.

This trading plan is working and is about to get better. If you followed this letters August 5 advice to sell puts for income with networking giant Cisco (CSCO), today is our chance to collect more cash.

Even shares of great businesses can not withstand a market in decline from various fears whether slowing economy, trade war, real war, etc. Cisco is a great business. Its sales, profit margins, earnings, and free cash flow are all at or near all-time highs. These great results do not always show up immediately in strong share prices as you can see Cisco Shares are down 8%.

Nothing had changed in the business. Only general market sentiment had changed.

So if on August 5, you sold September 20, $50/$45 bull put spread on Cisco. You sold the $50 put to collect income and you bought the $45 put for a built in stop loss (your maximum loss during the expiration period is the option spread or $5 per share so for every 1 spread sold you risk $500). You were paid upfront $1.06 (or 2.1%) for opening the position.

There was plenty of room for the stock to move on our day of sale with shares trading around $53 on August 5 (as long as shares closed above $50 per share on expiration day you would have kept the upfront premium and both options would have expired worthless.

On Friday, Cisco closed at $49.60. You now own 100 shares of CSCO for every put spread sold and you are still up 1.3% on your cost basis.

This is the beauty of trading for income. We have various best case and worst case outcomes and as long as the stock doesn't reach the stop loss we can continue to trade the position to be an income generating machine.

Trade details:

Sell November 15, $50 covered calls on your Cisco shares for around $1.65 or better using a limit order to earn an additional 3.4% income payment plus you will receive the upcoming $0.35 dividend payment since you will be a shareholder on October 3.

At expiration if shares are above $50: you will be forced to sell your shares at $50 (the price you paid to buy the shares). This will be a 22.4% annualized return (put selling premium + call selling premium + dividend payment = ~6.3% return in about 3 months).

At expiration if shares are below $50: you'll keep your shares and the income you earned and look for more covered calls to sell.

Continue your journey with trading for income and enjoy the successful income it can bring.

Disclosure: I wrote this article myself, and it expresses my own opinions. I have no business relationship with any company whose stock is mentioned in this article. The information provided should NOT be considered advice. The topics discussed are risky and have the potential to lose a substantial amount. I am not an investment professional and therefore do not offer individual financial advice. Please do your own research before investing.