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DISCLAIMER: Stock, forex, futures, and options trading is not appropriate for everyone. There is a substantial risk of loss associated with trading these markets. Losses can and will occur. No system or methodology has ever been developed that can guarantee profits or ensure freedom from losses. No representation or implication is being made that using the information in this special report will generate profits or ensure freedom from losses. Risks also include, but are not limited to, the potential for changing political and/or economic conditions that may substantially affect the price and/or liquidity of a market. The impact of seasonal and geopolitical events is already factored into market prices. Under certain conditions you may find it impossible to liquidate a position. This can occur, for example, when a market becomes illiquid. The placement of contingent orders by you, such as “stop-loss” or “stop-limit” orders will not necessarily limit or prevent losses because market conditions may make it impossible to execute such orders. In no event should the content of this correspondence be construed as an express or implied promise or guarantee that you will profit or that losses can or will be limited in any manner whatsoever. Past results are no indication of future performance. Information contained in this correspondence is intended for informational purposes only and was obtained from sources believed to be reliable. Information is in no way guaranteed. No guarantee of any kind is implied or possible where projections of future conditions are attempted.

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Options Income Engine: Background, Overview, and Trading Examples

www.optionsincomeengine.com Page 3

Hi everybody, this is Bill Poulos and I want to welcome you to the Options Income

Engine. Now the Options Income Engine course is based on my over 40 years of trading

in the markets. During that time, as you can imagine, I have made every mistake you

could possibly make, and I have learned a great deal in the process. My goal here is to

help you avoid making those same mistakes, dramatically shortening your learning curve,

and allow you to have the possibility of becoming a successful trader right out of the

chute.

And if I have learned anything in the 40 years is that it does not take 40 years to become

a successful trader. Now this is one of the best, most synergistic approaches to safely

capturing the leverage that options trading has to offer. As you will soon see, if we are

smart about the way we use the leverage, we put the odds dramatically in our favor.

Unfortunately so many options traders today abuse the leverage, and that is when the

options become highly risky with the traders suffering the consequences.



By the time we are done, you will see firsthand, by safely capturing the leverage that

options have to offer, it is actually less risky trading options than it is trading stocks. Now

that is really good news, because in today’s financial world, the old buying old strategy is

highly risky. Now yes, the markets have gone up significantly since early 2009, after they

fell more than 50 percent, regaining previous highs. But the truth is most people are still

under water from where they were prior to the 08-09 crash.

Those same people today have no exit strategy, should the market crash again. And it

really is not should the market crash, it will. The question is when. We do not know the

answer to that, but it will, and when it does, you do not want to be in it. And with the

Options Income Engine approach, you will not. Now we are going to be using

conservative tactics trading options, only in the markets at the right time.

This avoids, and even can take advantage of devastating bare markets. Because there is

nothing like owning put options in a falling market, where profits accumulate very

rapidly. Now there is work involved here, but Options Income Engine trailer software

does the analysis work for you. But it is important for you to understand the logic baked

into the software, so when the software issues an alert, you understand why. Okay, are

you ready to begin? Let us get started.



Objectives. Understand the background and the rationale behind the Options Income

Engine. Learn what you can realistically expect swing trading the markets with a

powerful, directional options strategy. That is what we are going to be using here. Get a

broad overview of the Options Income Engine key elements and get a feel for what it is

like to trade with the software by reviewing some typical trades.



Options and IRAs. While directionally trading options with the Options Income Engine is

ideal for IRAs, because buying options is actually less risky than owning stock, if you

know what you are doing. And you will know exactly what you are doing after

completing this course. In addition, you have the ability to buy put options in a bear

market, rather than suffer dramatic losses, or at best being safely in cash.

But in order for all of this to manifest, you must always apply sound risk management

principles. Again I am going to be hammering this, this is where options traders get into

trouble. They abuse the leverage that options have to offer, and they turn them into very

risky instruments. But by applying these sound risk management principles that we are

going to teach you, that turns the whole thing on its head, and gives you a tremendous

edge over those traders that do otherwise.



Background. Okay, let us review some background to set the context for the Options

Income Engine approach to trading the markets. It is based on the culmination of years of

experience. My experience, and those of the options markets themselves. It was not

always easy to trade options. Only in the last decade or two have the options markets

matured significantly to make a very low cost, easy thing to do for almost anybody.

After all, I began trading options before personal computers were available. And while

you could still make money back in those days, it was far more difficult than it is now.

Let us talk about false keys. Traders want to win on every trade, especially newbies. As

soon as they see a losing trade, they run for the hills. Or they stick with that losing trade,

do not apply sound risk management principles, and let a small loser turn into a big loser.

This is a well-traveled path, and it is a path that you do not want to travel on and we are

going to show you how to avoid it. But the best method on the planet cannot win every



time. If that is what you are looking for, then go buy a CD at your local bank and they

will be happy to pay you a quarter percent interest for one year. I mean even that one is

not guaranteed, because the bank could go under, and the government may even

disappoint you with the FDIC insurance, depending on your account size.

Do not expect to win on every trade, however do not expect to do great damage to your

account on any trade, and do not expect to be uncomfortable making trades when you do

it the way we do. What you should expect is, over a series of trades, to be a net winner

with relatively minor drawdowns on your equity curve. Now that is all very possible, it is

not guaranteed, nothing is guaranteed when it comes to trading, but that has been the case

as long as there have been mature options markets like we have now.

Human psychology, we are going to talk more about that in a later module, but this is all

about fear and greed. You have probably heard this before, but it is absolutely true. Fear

and greed are very powerful emotions, they get in the way of your ability to place and

manage your trades in a disciplined fashion. And as soon as you are driving by fear and

greed, like most traders are, and give up that discipline, you will also automatically give

up your trading edge.

It is very, very important to overcome that tendency. The best way I know how to do it is

to have a very specific set of rules that gives you the confidence to stay disciplined. That

is what you have with Options Income Engine. Successful traders, they all have one thing

in common, even though they use different approaches to trading. They all have an edge,

meaning they all have a way to put the odds in their favor. They all use sound risk

management principles, meaning they do not overtrade, or do not put position sizes on

that are not warranted by their account size. And are all disciplined. So it would behoove

you to do the same thing.

Now what we are going to be doing with Options Income Engine is swing trading,

capturing minor trends that occur over and over again. Now these trends will last from



anywhere to a week or two to sometimes two months, usually somewhere in the middle.

This is a perfect time frame for trading monthly options. Because the option gives you

time to be right, whereas when you buy a stock outright, you have far less time to be

right.

With this approach, there is always opportunities in the markets, whether they are going

up, or down, or sideways. But we only want to trade the best setups, we do not want to

try to trade everything. You cannot trade every stock, and every ETF anyways, so we

only want to trade the best of the best, stocks and ETFs, and then only when we have the

best setups for those stocks and ETFs. So with Options Income Engine, you are going to

be able to cut through the clutter in a way where you will always know what to do, no

matter what the market is doing.



That puts you in control, but only if you are disciplined. Now another key requirement in

order to stay disciplined is, your approach must be as simple as possible, because if it is

not, you are going to lose your discipline. It is that simple. And the Options Income

Engine approach is very powerful, but it is elegantly simple. You want to eliminate what

does not work, and of course I have learned the hard way what does not work.

These commonly held myths by traders, such as, well the only time you should put a

trade out is when you have a three or four to one reward to risk ratio. Well if you stick by

that, methods that can deliver that kind of reward to risk ratio usually win only 25 percent

of the time. That means that it is not unusual to have five, six, seven, eight, nine losing

trades in a row. So you see that approach really does not work.

Using too many indicators, or thinking that technical indicators are a silver bullet that

does not work. Thinking you know something about the market direction, because of a

gut feeling that you have, or what some so called experts said, that does not work. Now

you can disagree with one or all of those statements, but when you actually put it to the

test, you will find out that they are true.

Now again it helps stick with the discipline, the trade alerts software generates alerts for

the right stocks or the right ETFs at the right time, when setups occur in those markets

that put the odds in your favor. Then once you get an alert that is driven by an objective

set of rules, you enter the trade, and then manage the trade in accordance with objective

rules as well. That way you are not wishing and hoping, you are not cheerleading your

trade, you are just following the rules.

Sometimes you will be stomped out, but over a series of trades, you should expect to be a

net winner. And that should give you the confidence to go ahead and place the trade each

and every one. Now like I said earlier, with this material you have a great advantage over

me; it is not going to take you 40 years, thankfully. You are going to be able to learn this

in the shortest time possible, depending on your experience up until now, it could be a



matter of a couple days, or at the most a couple weeks, maybe a month. Then you will

own this knowledge for life.

Okay, let us kind of summarize all of this under the heading of great expectations. You

have got to treat your investing and trading as a business. It is not a hobby. It is not

playing the market. It is not looking for picks. It is not chasing after the latest fad. It is

just a very serious approach, a business like disciplined approach to taking as much

money out of the markets as you can. The bad news, you cannot win on every trade. But

the good news is you do not have to if you apply sound, risk management principles, and

you have realistic expectations.

Do not expect to open a $5,000 account and turn it into one million dollars in a year; that

is absolute nonsense. On the other hand, you could grow that small account

systematically, so that over time as it compounds it can indeed turn into a very, very large



account. As I said, you have to have an edge in the markets, and successful investors do

indeed have an edge. Meaning the odds are in their favor.

Ask yourself, do you know what your edge is, if you do not know your edge, then you do

not have one. And if you do not have one, do not trade. You are just gambling otherwise.

But if you do have an edge, and you are disciplined, and you follow your risk

management rules, you have the potential to enjoy great success.

Okay, let us talk about some key elements of success. You are going to need a good

online broker, and fortunately these days that is not a problem, there are several to choose

from. The Options Income Engine trade alerts software is an invaluable aid in simplifying

your trading activity. While it is not required to apply the Options Income Engine trading

methods, it will save you a lot of time that you would have to spend on your own

analyzing the markets, and it will help you avoid mistakes.



Now you probably are also going to want some good charting software, as provided by

firms such as Trade Navigator, TC 2000, Meta stock, and there are many others. With

good charting software, you can plot the Options Income Engine indicators, you can

practice applying the trading methods that we teach you, and you can keep up to date on

your trades on an end of day basis. You do not really need intraday software, unless you

want it, but the end of day data is all that we need with Options Income Engine so that

you are not having to be glued to your computer all day long.

You will find that it is easy to manage, you will get periodic software alerts, where there

is a new setup, and you will get alerted to that after the market is closed. You will have

plenty of time to enter your order before they open the next day. You will also be alerted

of where to place your initial stop, you will be alerted to change that stop and apply

trailing stops, locking in more and more profit as the trade matures. And also where to set

your profit target.

Now as I said, we are going to be swing trading minor trends, which is ideal for

directionally trading options. We will be using a very powerful trading method for the

long side of the market where we are buying calls, and a very powerful trading method

for the short side of the market where we will be buying puts. We will be using a few

technical indicators together with uncommon trading tactics. As I said, the indicators are

not a magic bullet, but if we are smart about the way we use just a few indicators, using

them in an uncommon fashion, then we can put the odds in our favor.



So we are going to be looking for a high probability, swing trading opportunities using

Option Income Engine’s specific option able stock and ETF selection criteria, setup

conditions, entry stop, and profitable exit strategy rules. Each trade will be guided by risk

management and position sizing rules, which is critical to harnessing the leverage that

options provide without abusing it. We are going to be following a simple, but powerful

directional swing trade options strategy. When you add it all up, you will always know

what to do in the markets for life.



So what do we mean by directional swing trading options strategy? Well we are going to

be buying one or two strike, in the money, monthly options, both calls and puts; instead

of stocks or ETFs. Now this gives us the opportunity to dramatically limit risk by

dramatically reducing the maximum possible loss per trade. This is a huge advantage

over trading stocks. At the same time routinely enjoy double and triple digit percentage

gains.

We are going to do that by swing trading minor trends of one to eight weeks within a

major trend. Because this gives us the best opportunity to maximize profits with this

strategy. And it requires very little of your time to properly execute this strategy. Now for

those that are new to options, please review the bonus module in detail, entitled Trading

and Options Basics. It will get you up to speed in a matter of minutes, and you will be

good to go with the Options Income Engine.



The indicators. With Options Income Engine, we are going to be using a simple 50 day

moving average. We are going to be using slow stochastic percent k with an 8-3-3

setting. We will be using the average true range based on the past 20 days, and an

indicator called on balance volume.



Let’s take a look at a typical stop chart where we will plot the 50 day simple moving

average.



Okay, here is a typical stock chart, daily stock chart, it could be any stock. And I have

plotted the 50 day simple moving average in red. You can see how the moving average

smooths out the daily price action, so as the market is trending up here, the moving

average turns from down to up in a nice smooth line. As simple as it is, it is a very good

indicator of the general trend of the market. Now like all moving averages, it is a lagging

indicator. In other words, it does not turn up until after the market turns up.

But nevertheless once it does, it usually indicates that the market has turned from a

bearish bias, to a bullish bias. Giving us the opportunity to get in on some of these swings

that occur along the way.



Okay the next indicator is the Slostocastics Percent



Okay, same stock chart and now we have applied the percent K, which is the blue line,

and it is plotted below the price chart. The percent k is helpful in identifying so called

overbought and oversold conditions in the market. When it is below a certain level that

would indicate the market is oversold and may be heading up. Not a guarantee that it will

be heading up, but maybe. Oversold, may be heading up.

But it is important to use the percent K in conjunction with a trend indicator, such as the

50 day moving average. The red line is the percent D, which is simply a three day

moving average of the blue line, the percent K. We will not be using the percent D, but

typically when you plot this indicator, you will see both the percent K and the percent D.



Okay now let’s take a look at the average true range.



Like the percent K, the average true range indicator is plotted at the bottom of the chart.

Showing the average true range for the past 20 days. So if you pick off a point on the

chart right here, that would be the average true range of the past 20 days.



Okay our last indicator that we’re going to be using is On Balance Volume. Let’s take a

look.



Okay, on balance volume is also plotted at the bottom of the chart. You can see that plot

right here. What that indicator is, is simply adding and subtracting the daily volume. If

the market price goes up from the prior day, then you add the volume for that day. And if

the close is lower than the prior day, then you subtract the volume for that day. It is very

simple.

The absolute value really does not have any meaning, it is the trend that we are looking

for here. So we are looking for an uptrend to confirm that the market wants to go up. If

the on balance volume is flat, like it is right in here, almost flat to downwards, now going

down. It is telling you that even though the market is going higher here, it may be

unsustainable and ready for a drop.



Okay now let’s take a look at what the chart looks like applying all of the indicators at the

same time.



Okay, so here we have the 50 day moving average. The percent case slow stochastic is

the blue line. The average true range. And the on balance volume. Those are the only

indicators we are going to need, and we are going to be using them in an uncommon

fashion, which will help give us an edge. Trading tactics based on price action, supported

by a few indicators is the way to go.

If you use any more than a handful of indicators, I believe you are kidding yourself, they

will not give you an edge. In fact, they will further confuse the issue, and you will never

have a consistent, simple, but powerful way to look at the markets, as we do with Options

Income Engine.



Alright, now let us look at some Options Income Engine trade examples. Now at this

point, we are just looking at a high level overview of the type of trades identified by the

trade alerts software. And when there are no trade alerts to enter the market, it is time to

stand aside. A lot of new traders feel like they have got to trade every day. They are so

anxious to try it out they have got to trade every day. And you know you do not want to

do that.

You want to let the market come to you. Be patient. We are not playing here, we are very

serious, we are methodical, we are disciplined, we let the market come to us. There is

plenty of opportunity, there is no point in trying to force the markets. So at this point we

just want to get a feel for the method and see what the trades look like. We are going to

deep dive them a little bit later.



Okay, first we have Netflix, NFLX. This is a daily chart, we have got our indicators

plotted, our 50 day moving average in red; our stochastic k in blue; our average true

range down here in green; and our on balance volume in orange. So you can see here, by

virtue of this blue arrow, we got an alert to buy to open a January 290 call at $14, with

Netflix trading around $300. Now notice, instead of buying Netflix for $300, 100 shares

of Netflix at $300 would be $30,000 required in your account to do so.

Whereas if you buy one option, one January 290 call option, you are controlling 100

shares for what? $1,400, 14 times 100, as opposed to $30,000. See right off the bat, you

have got risk severely limited. When you buy the stock, you are really exposed to the

tune of $30,000. When you buy the option, you are exposed to a maximum possible loss

of $1,400. Now that does not mean that you are going to lose $1,400, but in the worst

case, that is what you could lose. That is it.



If you apply the right position size and risk management principles, you can never do

great damage to your account. Okay, so in this example, we are buying to open the

January 290 call at 14 right here. We always want to try to scale out of these trades in two

steps. One at a profit target, and the other using a trailing stop. So just in general terms

understand that now, we will get into the details later. So here is a profit target being hit

right in here, selling to close half position at $40.

Look at the gain on that. From 14 to 40 in just a few days. So you have very limited risk,

and very high percentage gains. Oftentimes triple digit gains has occurred here. Now the

second half position was closed out right here using a trailing stop at $27.20, still a nice

gain. Sometimes the profit target will outgain the trailing stop, and sometimes the trailing

stop will outgain the profit target.

You do not know what the market is going to do on any given trade. So using this

strategy to exit the trade by scaling out in two steps maximizes your profit potential over

the long haul. Okay, now the software said to get back in, get right back in a couple days

later, right there. Buy to open this time a January 320 call at $12.20, because what? The

stocks trading now are around $325.00. The trend apparently is not over.

Sure enough it keeps moving on up, selling to close half position at a profit target at

$53.70. What a gain. This one took about a month and a half, exiting right there, and then

trailing stop exited a few days later at $52.80, so just an outstanding trade for both half

positions.



Okay, the next one is Cleveland Cliffs at CLF. Software said buy to open. August 23 call

at $2.40 with CLF trading around 24 and change. Profit targets selling to close half

position at 750, very nice gain. And then the trailing stop at 450. Still a nice gain. This all

happened in a matter of about three to four weeks.



Okay, next one is BAC. This is a put option, we want to buy to open the April 36 put at

270. Right in here, expecting the market to head lower. At that point BAC was trading

around 33.50. Now what happened here, it did not trade lower, it reversed and headed

higher, we got stopped out just a few days later at $1.90. Now as I said before, all trades

will not be winners, there will be losers. But look what happens here, this loser first of

all, when you put the trade on, your maximum risk for 100 shares is $270, as opposed to

buying BAC outright for 33.50, requiring $3,350.

Instead of having $3,350 at risk, the worst you could possibly do buying the option is lose

$270. Now as I said, that does not mean that you are going to lose $270, indeed in this

case here, you got out at $1.90, losing $80. Okay, so this is what I mean about proper

position size relative to your account size, if you lost $80 say on a $10,000 account, that

would not be a big deal, would it?



On the other hand, if you abuse the leverage that options have to offer, let us say you put

on 40 of these options with a $10,000 account, well then you would wipe out the account,

and there is absolutely no reason to do that.

Okay, the next one is silver ETF SLV. Software said to buy it open at October 18 put at

220 right in here with SLV trading around 16.50. And profit target was hit very quickly,

sell to close half position at 340. And the trailing stop exited right here at $5.30, so very

nice gain on both half positions and you are on to the next opportunity.



Okay, next is BBRY. We have got an alert to go in buy to open, January 7 call option at

$1.10 when BBRY was trading around $8. Very quickly the first half position alert was

issued to sell to close half position at $2. Right here in the matter of a couple of days. So

a very quick nice gain of about 80 percent. Then we let the second half position run,

protected by a trailing stop. It ran for several days, and got out right here, about a month

and a half later, for a fabulous gain up to $5.10. That is a 400 percent gain.

Again with very limited risk. In this case, buying one option at $1.10 would have

required $110. That would be the maximum you could possibly lose, not that you are

going to lose it. Because on many losing trades, we are going to lose less than that, versus

having to put up $800, had you bought the stock. And then after having minimized risk,

you have the potential for these terrific gains. Okay, now the market then held up, and the

software said that it is time to get back in right here.



Buy to open, this time the March 11 call at $1.25 with BBRY trading around $12. For a

quick run up after stutter stepping sideways here for several days. Hit the first half profit

target right here at $3.25, terrific gain. And then the second half position stopped out with

the trailing stop right there, with an even larger gain at $5.30. Now not every trade is

going to be this good, but these are indeed typical. And I just want you to get a feel right

now for how these trades work.

Now one thing I want to point out, and you are going to see this in the deep dive trade

examples we do later on. That when you buy to open right here at $1.10 January call, this

is the month of October. November, December, January, this call does not expire until the

third Friday in January. Now what does that tell you? You have got minimum risk here.

You have got until, theoretically, the third Friday in January to be right on this trade.

Let us say it dropped after you get into the trade, let us say the market dropped. What if it

dropped in half, all the way down to $4. How much could you lose? $110. What if it

dropped to $7, how much could you lose? $110. What if it dropped to $6? What if it

dropped to $0? How much could you lose? $110. Now, we are not expecting it to drop,

but sometimes when we get into these trades, initially the market does drop, but that is

okay up to a point.

We are not going to wait for this to go to 0. But it is okay, because why? We have a lot of

time to be right. So even if it drops initially and then heads up and hits our profit targets,

we still have a very nice, profitable trade. Now if you are buying the stock instead, right

here, you cannot wait for the stock to drop to $6 or $4 before getting out; you have got to

get out right away.

And what happens? Your percentage of losing trades goes up when you buy the stock

directly. And your profitability goes down. This is a huge advantage of being able to buy

these monthly options, controlling the same number of shares with less money, and a lot

less risk. You will see this in more detail a little bit later on.



Now those trades that you just saw were based on certain trading method basics. Any

good method should have these basic principles working for it. So the Options Income

Engine trading method includes four components. Specific setup conditions, specific

entry rules, specific initial stop rules, and specific exit strategy rules. And there is a set

for the long trades, or those where we buy call option; and there is a different set for the

short trades, or where we buy put options.

Because the characteristics of a market when it is going up are generally different than

when it is going down. So it calls for a different method, and you will see that in more

detail as we go through the course. Well right now I just want you to understand that

those trades we just reviewed were governed by these trading method basics.



Okay. Action steps: Make sure you understand the key points covered in this overview.

Email us with any questions that you have. And it is not too early to start using historical

charts, and practice plotting the price charts, and applying the indicators. This concludes

background, overview and trading examples.

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