Tom Preston Generating Income On A Million Dollar Account Using Only Theta

TITLE: Tom Preston Shows How He Would Generate Income on a Million Dollar Account Using Only Theta CHANNEL: tastylive DATE: 2026-06-23 ---TRANSCRIPT--- If you’re somebody who has a million dollars to invest, what would be an approach you could use? Now, a million dollars, what does that mean? Well, you know, a millionaire uh could be somebody who has a million dollars or $10 million or whatever the number is, but I just want to stick to somebody who Yeah. Okay. Let’s let’s make it a round number. A million dollars. How how would I consider approaching the um you know that that amount of money to trade and get a decent return on capital. It’s not going to be about picking the right stock. It’s not going to be about guessing direction, you know, buying at the bottom, selling at the top. It’s not going to be about any sort of fancy advanced strategies or anything like that. Let me walk you through a general approach that relies on one of the most important and reliable things in option trading. Theta. So theta is the number that uh measures how much of an option’s exttrinsic value decays with one one day’s passage. So going from Monday to Tuesday, how much does that option’s exttrinsic value drop? Okay. And just like you can pretty much count on time passing, you can count on theta. Now theta changes as volatility goes up and down. Time passes, the stock moves up and down. I get that part. But what I want to do is create just show you how I would put together a sample portfolio that takes advantage of theta to generate returns. In other words, it’s not about, gee, I’m going to buy these stocks and hold on to them and hopefully get returns that way. This is going to use theta to hopefully beat the market. Let’s let’s take a look at some trades. Um, what what you’re going to see is I’m looking at typically high dollar symbols. Okay? Now, I’ll explain why in a bit, but let’s go and take a look at a couple of trades. The first one is um SPX options. And yeah, I’m going to go in and these are the one days so we don’t get confused with the zero DTE, but I would use these with a zero DTE and the day of um I’m going to go out and I’m going to sell I don’t know, let’s say these the 70% probab I’m going to sell the 7440 puts and I’m going to turn to an iron condor by buying let’s say 25 bucks away the um uh 715 puts. This trades a short vertical. I’ll go in and yeah, let’s sell let’s sell let’s sell a $12 call. Let’s sell the 7505s and buy 25 points away the 730s. Okay. Um this is $11 credit. And what’s my theta? $453. Yikes. For $1,300 of buying power. Okay, let’s just keep that in mind. Um let’s go to another. Let’s take a look at let me see here. Let’s look take a look at meta. And instead of using zero DTE with meta, I’m going to go out to uh 39 days. Why 39 days? Well, it’s a good balance of overall credit and the actual rate of theta. Um I’m just going to go and look for a 70% um probability of expired worthless. uh sell the um 520 put and then I’ll look for let’s say a $14 call to sell. I’m going to make this as easy as possible for myself. Selling the 620 call, selling the uh 520 put, generating uh $70 of Theta for $6,900 or 6 about $7,000 of capital. Um let’s go into um let’s go take a look at Micron MU. Oops, sorry, wrong symbol. MU um Micron has earnings pretty high implied volatility and again is a very expensive stock. Um I’ll go down and look for these uh 70%. Um me take a look at a few more strikes. This is a big stock and this is a very easy platform to do this on. Very adjustable. So what I’m going to do is 70% here. I’m going to sell the 935 puts and they’re about 52 bucks. Let’s say I’m going to sell a $52 call out of the money call. Making this really really simple. Nothing advanced. Nothing um that’s too confusing. Um generating $320 of theta for $11,000 about $12,000 of uh capital requirement. Okay. So, what I’m doing is I’m generating a lot of positive theta. I’m not guessing direction. The delta on this trade is min -5.72, less than six shares of delta. Let’s take a let’s take a look at um a future. Let’s go into um crude oil. Crude oil is a big product. Has um you know, $1,000 a point. Let’s go in and sell uh let’s do the same thing. is 68 half puts and scroll up and I’ll do let’s sell these calls right here. Sell these calls generating uh $130 of theta for 24 day over 24 days for about $9,500 of capital. Okay, what’s the thought process here? I’m not looking at any analysis. I’m not doing any chart analysis. I’m not just saying, “Oh, what’s going to happen with Micron? What’s going to happen with uh Meta? What’s going to happen with crude oil? What what are the numbers? We’re I’m not looking at any of that. All I am basing these trades on short premium trades, selling out of the money calls, out of the money put, short strangles in the case of the S&P, doing an iron condor, which is just selling a strangle and buying wings further out to reduce the capital of the risk. But what I’m doing is just saying I want to collect data and I’ll do that by selling out of the money calls, out of the money puts. Look at this crude oil tread has 0.01 deltas. It these are not directional trades. I’m not saying you can’t do that, but that’s not what this is about. Now, if my goal is to generate decent returns on a million dollar account, how much theta would I need? Well, let’s let’s let’s let’s think about it for a second. If I can generate um $1,500 a day in theta, okay, let’s make a round number and there are $250 trading days in a year. Let’s let’s round it down to 250. That’s about um about $375,000 a year of positive theta generated. But let’s let’s pause for a second and say, well, hang on. You’re not going to keep all that all the time. Why? Well, they’re going to be losing trades. You’re going to have bad days, bad weeks, bad quarters. Okay? Um, you’re not going to keep all that money. Let’s say you give back 60% of it. Let’s say instead of making 375, you actually make only on this these short strangle strategies, you only make about $225,000. Okay? And what you see here is a grid I put together of eight symbols. What’s what is what’s going on with this? So, the grid is basically eight symbols. SPX short iron condor, Meta short strangle, Micron short strangle, LLY short short strangle 39 days, crude oil short strangle. And what I did was with the exception of S&P, I just basically did one or two contracts that would basically make the the buying power requirement or the capital requirement to do these trades even. So they’re all about 10 11 $12,000 except for the S&P because if you did a short strangle in the S&P it would be like you know 170 $80,000 they’re pretty expensive. So let’s just keep that as a defined risk trade that generates a lot of theta and these other individual stocks in the crude oil or futures as short naked strangles that have about 10 112,000 of capital requirement for each one together. And I just loaded these up and looked at their theta numbers. They generate about $1600 of theta a day. A little bit more than our $1,500 target. and composite they use up about 86 $87,000 of capital requirement to put on. What does that mean? So going back and saying if I do this every if I maintain about $1,500 of theta every day and this is not talking about how to manage these trades. That’s a different issue. Whether you adjust them, you roll them, you you close them for 50% profit. How you manage them is another question. I’m just assuming or we we’re going to put that off and just talk about generating that theta per day and the numbers you can generate if I do that $1,500 a day. I could you could do it with eight symbols, one contract, two contracts depending. And why am I doing these big uh price stocks? Because the higher the price of the stock, just the bigger the number, okay, the the more valuable its options are. It’s a linear relationship, all of the things being equal. If a stock price is more expensive, it’s going to have higher priced options. It’s just the way it works. And because they’re higher priced, there’s more extrinsic value to decay. They have a not a higher percent of theta but a higher dollar value of theta. So I’m looking at higher price stocks, higher price symbols, big symbols like crude oil, thousand bucks a point that have relatively high volatility selling strangles and then in those and with eight symbols I’m generating $1,500 $1,600 in this case a positive theta. Now you don’t have to take this risk. You can trade smaller things. You can trade, you know, smaller price stocks, you know, that have, you know, like $50 stocks, $100 stocks. Good, great. But you might you’ll have to do more of them. In other words, you might have to do 20 or 50 or 100 symbols of smaller trades to get to that 1500 number. That’s okay. That’s your choice as a trader. But the point is that generating money in from theta it removes the requirement to be right about the direction of a stock right about the market. Now maybe you want to do that as a trader. That’s your choice. Maybe you want to you know say well I think this stock is undervalued. I’m going to buy it. I think this stock is overvalued. I’m going to short it. Okay. That’s a different strategy. and what this this short premium uh approach that is my strategy that is a strategy one strategy of several that a trader might use but I just want you to think about generating returns and you get can get pretty good returns just selling premium so like I said if you generate $1500 a day if that’s the target however you do it whether it’s with eight big stocks or 50 smaller price stocks that you don’t have to risk all of your capital. If you have a million dollars and your and your capital requirement is about $86,000, that is a it is not the maximum risk of the position, but it is an it is an estimate of how much risk you might have over the next day or so. Let’s let’s think of it that way. It’s not exactly that, but it’s it’s a decent metric. So, you’re taking about let’s say 86 not or let’s say $90,000 worth of risk on these positions, okay? And you’re generating $1,500 a day, you have even if even if you have a really bad month, you still have most of your capital left to continue trading this. That’s the idea. So, if you have a big enough account, let’s say a million-doll account, I mean, what’s what are you getting with the just buying stocks for or buying them? I buy an buying an index fund. Stocks go up what 9 10 11 12% a year maybe. I guess on most years on average, sometimes they’re higher, sometimes they’re lower, sometimes they’re negative. But if you can generate this money day after day, week after week, month after month using high probability strategies to collect theta over time, hopefully that is going to pay off. Yes, like I said, you will have losers. You will not keep every dollar of that theta. But even if you do even if you gave up just for example even if you give up 40% of the capital of of the of a theta because the stocks move a lot you lose on this strangle you lose in that iron condor whatever 60% of that $1,500 is still over $200,000 and against a million dollar would give you about a 20% return on your investments on your cap on total capital. That’s pretty impressive. I think that’s better than most index funds do. I know it’s better than CDs and money market funds. The question is, do you want to take the risk? Yes, there is more risk in this. You will never get higher returns without taking more risk. Yes, this is risky, but you’re not risking everything. And you have probabilities on your side. Those probabilities don’t always work out, but over time the goal is that they will. Now, this isn’t for everybody. You have to be on top of this. You have to be an engaged trader. Um, doesn’t mean you’re going to be trading every day, but you’re going to be looking at this every day. Is my theta at my target level? If it isn’t, do I have to adjust an existing position? Do I have to roll it? Do I have to find a new um a new symbol to trade? What do you think I do every day as a trader all day long? Look for new trades. Another trade. Another trade to get my theta to to the number I’m looking for. That’s the work. And again, maybe you don’t want to do that, but if you’re willing to give it a try and use these types of strategies, just even maybe you don’t have a million dollars, you can still try this with $500,000, with $200,000. you take you’ll be risking more of your capital, but you can still give it a try. Or if you have a lot more money, you just do more symbols. But if you’re willing to give this a try, the returns on your in on your overall account can be much higher than just sitting and keeping your fingers crossed and hoping that the market goes higher. So none of this is a trade recommendation. Um, if you do decide these to trade these things, please use a smart strategy to do it and never take any more risk than you are comfortable with.