FAQ: The Monthly Income Machine System

How much does “The Monthly Income Machine” cost?

The book is $79.95 + $4.95 standard U.S. shipping/handling from the publisher. Priority and International shipping also available. There are no other costs as the use of the Forum, Lee’s White Paper reports, one-on-one coaching, etc. are all inlcuded in the program.

Guarantee: SaferTrader also provides a no-questions asked guarantee. Use the step-by-step strategy revealed in the book, and if you are not convinced you can earn 8% or more income per month, return the book and you will immediately receive a refund.

Click here for more information.

Incidentally, because the use of an options-friendly brokerage firm is so critical to your maximum rate of return on a certain “The Monthly Income Machine” type credit spreads, SaferTrader recommends several firms that we know to be options-friendly.

Safertrader: safer than what?

Depending on an investor’s objectives, there are strategies related to account appreciation and strategies geared to generating income. There are aggressive and conservative approaches to each of these objectives. The SaferTrader.com community focuses on what we believe to be the most conservative approach to mining the markets for income.

If you are seeking a reliable stream of income from the markets, the “safest” and most reliable technique I’ve known in 30+ years as a broker, trader and financial educator is laid out in “The Monthly Income Machine.” Following the specific trade entry rules of this strategy can produce 8-9 profitable trades out of 10. That’s as safe as it gets!

Your strategy uses options. Aren’t options considered very risky?

The popular answer is, “yes.” Most people are buying out-of-the-money options as a gambling vehicle they hope will bring them home-run profits. The statistics are pretty grim for those folks. They usually lose money.

But the way “The Monthly Income Machine” uses options is EXACTLY the opposite. Instead of buying options and paying a premium to do so, we collect the premium by using option combinations (spreads) according to the “rules” Lee developed over three decades, where the monthly rate of profit is relatively high and the accompanying risk is relatively low.

Does your strategy involve “selling short” to collect the premium?

NO! While it is true that selling short without an offsetting option position or already owning an equivalent number of shares of the underlying stock would provide much bigger premium income than doing “Monthly Income Machine” credit spread and Iron Condor trades, it is very, very dangerous.

I consider naked short selling a “Triple D” enterprise (dangerous, doomed and dumb).

If you can make up to 8-10% per month this way, why isn’t everyone doing it?

The flippant answer is that not everyone has read the book.

The real answer is this: Many people are using some variant of this strategy. Hedge fund managers, market makers, stockbrokers, and other professionals and sophisticated investors employ this vehicle routinely, although not necessarily using the entry criteria and rules I developed.

I have read that Warren Buffett employs this underlying strategy among his market activities as well.

Interestingly, before the advent of online trading/brokerage accounts, option commissions were much too high and affected potential rate of return too much. Nowadays, these transaction costs are minimal – especially with options-friendly brokerages like those we recommend

I’ve traded stocks, but don’t know anything about options. How hard is to learn to use your strategy?

It is not difficult at all. “The Monthly Income Machine” book explains precisely what the requirements are for a trade – ending with a checklist of what conditions must be met for you to place a trade. The book not only gives you the straightforward “how to,” but also explains the “why” so you can use the strategy with confidence.

In addition, Lee is happy to provide one-on-one support to the SaferTrader community participants if you have questions.

I understand from the book how to determine what trade to do, but I am not quite sure how to actually enter the order online.

By all means do not allow the mechanics of entering an order cause you any grief. Simply call your brokerage firm and request assistance. They will be happy to review the process with you and to make sure you are correctly entering the order you want.

If not, you are with the wrong firm!

What brokerage firm do you recommend?

There are several that meet our requirements as “options friendly” brokerages. Most firms handle stocks and options, but not all of them – including some very well known names – are options friendly. In addition to discount commissions, prompt and knowledgeable customer service, a powerful order entry platform, cost-free quotes and research, you MUST use a brokerage company that properly sets margins for “Iron Condors.” This type of spread is a very important part of “The Monthly Income Machine” technique.

If the brokerage firm’s policy does not provide option-friendly margin on such trades, your profit rate of return is cut in half!

Go to our Options-Friendly Brokerage page for information about the three firms SaferTrader recommends.

How much money do I need in my account to use the “Monthly Income Machine” strategy?

Because we are never buying anything outright, and are instead receiving money into our account when our credit spread order is filled, the funds you need in your account represent margin, funds the brokerage firm requires as a good faith deposit in the event that the trade goes the wrong way.

The margin requirement on most credit spreads is either $500 or $1,000, depending on the market value of the underlying stock or index. You will probably want to have more than one position on each month, plus you want to have a margin reserve in the event you spot additional trade opportunities during the month that meet the “Monthly Income Machine” entry criteria.

Therefore, I recommend that you have an account with at least $6,000 available.

Do I have to live in the United States to use this technique?

If you meet the requirements of the brokerage firm and the exchanges to open an account, and have access to the Internet and/or a telephone, you can trade your account from wherever you live.

Can you manage an account for me?

I’ve been there and done that for many years. However, when the thought crosses my mind now, my wife glares at me.

If the money I receive when I sell a credit spread using the rules you outline is deposited in my account when the trade order is filled, does that mean a profitable trade is assured?

Of course not. Approximately 8 trades out of 10 should (based on required delta values) result in the options expiring worthless on expiration day each month. That’s what you want to happen because you are selling (not buying) a position called a credit spread or Iron Condor, and collecting your potential profit (called the premium) up front. When and if that month’s options expire worthless the trade is over and the premium you collected up front is yours to keep.

Roughly 2 time out of 10, the underlying stock or index may make a very strong move in the wrong direction, and you would need to exit from the position – at a relatively small loss if following the trade management rules of the technique – or employ one of the trade adjustment techniques explained in the book to turn the trade into a break-even or small winner or loser.

Incidentally, the probabilities mentioned above – 8 out of 10 winners – are obviously not guarantees, but nor are they promotional hype pulled out of the air. An important “Monthly Income Machine” rule requires that the trade’s Delta (a mathematical figure computed automatically on your brokerage firm quote screen when you are considering the trade) defines the probability that the spread you are considering will expire worthless, as you want it to do. The Delta on all trades you will make will indicate that there is a less than 10% (1 out of 10) probability that it won’t expire worthless. Note: this is probability, not certainty.

How much time do I need to devote to operating my account?

At the beginning of each option month, you will sit down with a cup of coffee (optional!) for an hour or so and, following the checklist provided in the “Machine,” you identify which stock options or index options meet the entry requirements. This is a completely mechanical process… no subjectivity or emotion is involved.

You might also want to check on the SaferTrader Forum web page to see and discuss what trade candidates other “Machine” users may have identified.

Once an order is filled, I place my contingent adjustment order (essentially a stop loss order; see adjustment description in answer to preceding Question). That way, the adjusting trade is done automatically if needed. Once my order is filled, I usually check the quote screen once a day around noon. I usually look again after the market closes.

That’s about it. The main disadvantage of the strategy is that for some people it’s quite boring.

We now also offer the convenience of an optional “Conforming Credit Spreads Service” monthly subscription. The Service provides a weekly report that lists all the specific credit spread trade candidates that meet ALL the entry requirements as of the date of the report. For details, see Conforming Credit Spreads Service

Which work best with the strategy: stock options, index options, or ETF options?

I use all of them and the strategy is exactly the same for each.

But the entry criteria are different for stock options compared to Index or ETF options.

This is because the premium we collect up front on a “Monthly Income Machine” trade depends on, among other things, the volatility of the underlying stock or Index.

Indexes and ETFs like the S & P, the SPY, the Russell 2000, the Nasdaq, etc. are less volatile (less dramatic moves up and down) than most individual stocks that meet our entry requirements.

Consequently, the Index and ETF options (responding to the price of a basket of stocks) provide comparatively smaller premiums (the premiums are our income) than those on individual stocks. Offsetting this factor, the Index and ETF options are less likely to make a strong enough move, percentage wise, to threaten our position.

Bottom line: you can use stock, Index, or ETF options for the monthly trades, so long as you apply the indicated entry parameters for that class.

I follow the S&P closely. Do you recommend using the S&P index or the SPY for S&P based positions.

This question, S&P vs. SPY, comes up frequently, along with the same question relating to: DJX vs. DIA, NDX vs. QQQQ, and RUT vs. IWM.

There are two major areas we need to contrast to get at “which is better”: differences in how they trade and tax treatment differences.

Trading-related Differences:

SPX, DJX, NDX, and RUT options are Index Options. They are European Style options, which means, among other things, that their “last trading days” are different from those of ETFs. Index options expire on the third Friday of the month, so their last trading day is the third Thursday of the month.

SPY, DIA, QQQ, and IWM are ETFs (Exchange Traded Funds) and involve American Style options, which means the options expire the third Saturday of the month, so their last trading day is the third Friday of the month.

Another significant difference between the Index options and the ETF options is that the Index options are “cash settled” and the settlement takes place only on expiration day. ETF options on the other hand can be “assigned” at any time.

This difference confers an “advantage” on the Index options (SPX, DJX, NDX, RUT) since with their ETF counterparts you could experience being assigned the underlying stock on a Friday and then have the market open greatly against you the following Monday. (an assignment prior to expiration day is, of course, extremely unlikely if your Strike Prices are well out-of-the-money.

Another trade-related significant difference is liquidity and the related matter of wide or narrow bid-ask spreads. Liquidity of the SPY ETF (often called the SPYder is much greater than that of its Index counterpart the SPX. Therefore you can typically expect better (more favorable) fills on SPY orders whether you are entering or exiting the position.

Also, be sure to keep this in mind: The SPY and other ETFs pay dividends. Therefore, there is dividend risk (you could have to pay the dividend) it you are short on ex-dividend day.

Finally, there are differences in size of the contracts. For example, the SPY is 1/10 the size of the SPX; the IWM is 1/10 the size of the RUT; the QQQQ is 1/40 the size of the NDX.

This means that you would need to acquire more contracts of the SPY, IWM, or QQQQ ETF contracts to equal the value of their index counterparts… and that means you would be paying more in commission for the same “buying power effect.”

However the higher commission disadvantage of the ETFs may well be more than compensated for by the ETF’s narrower bid-ask spreads resulting in better fill prices.

An additional important advantage of the ETF vs. Index approach is that the investor has the opportunity to take advantage of market movement to acquire greater premiums as he accumulates the ETFs at different prices on the way to equaling the buying power effect of a single larger Index.

Tax Treatment Differences:

Here there is a substantial plus to Index options. The IRS treats these indexes differently from stocks (or ETFs).

The Index options get special Section 1256 treatment which enables the investor to have 60% of a gain as long term (at a 15% tax rate), and the other 40% treated as short term (at the regular 35% short term capital gains rate) even if the position is held for less than a year.

By contrast, the ETFs are treated as ordinary stocks, and thus if held less than a year, all gains are taxed at the less favorable 35% short-term capital gains rate.

Thus the Index options are better from a tax standpoint.

Here’s a summary:


European Style
Can exercise only on expiration day
Usually have wider bid-ask spread
Last trading day – third Thursday
Tax treatment – 60% long-term


American Style
Can exercise any day
Usually have narrower bid-ask
Last trading day – third Friday
Tax treatment – entirely short term

Enter New Comment

4 Responses to “FAQ: The Monthly Income Machine System”

  1. i read the book. how do i get started?

  2. Hello,

    Thanks for the information. I wanted to know if you offer auto trade for the premium service.


    • Autotrade is not really possible because it is necessary for the investor to confirm that trade candidates that conformed based on Friday closing prices still conform when contemplating a trade after the markets re-open after the weekend. So, if the underlying has begun trading substantially higher or lower than where it was on Friday, the investor may need to move up or down in strike prices in order to still have a fully conforming “Conformiing Credit Spreads Service” trade.

Enter New Comment or Leave a Reply