Income Methods Summary

Income Method #1: Sell a Call against the Married Put, creating a Collar. The Call strike price should always
be at or above the strike price of the protective put. You typically want the stock to rise 5-8% before
considering Income Method #1. IM #1 will generate income to lower the at-risk amount, but it will also cap
your upside.

Income Method #2: IM #2 is a reaction or adjustment to Income Method #1. This Income Method teaches
how to properly adjust IM #1 if the stock moves above the short call strike price, and you expect further
potential gains in the stock.

Income Method #3: Rolling the protective put closer in time after the stock has risen. This Income Method
takes advantage of the REDline Decay (one of the three main principles of the RAT method). By moving the
put closer in time, you can generate income and potentially bulletproof the RPM, although the time frame of
your protective put has been decreased.

Income Method #4: Rolling the protective put up in price or up and out in time. This is the only Income
Method that results in a Debit to make the adjustment. However, raising the strike price can usually result in
bulletproofing the position.

Income Method #5: This is a little tricky. IM #5 is one of the 'Money Nets' Income Methods. In IM #5 we will
look to purchase an ATM or slightly OTM call, and sell twice as many calls at a higher strike price. The
premium from the short calls will be greater than the cost of the long calls (typically). This essentially creates
a Collar spread with a Bull Call Debit spread that you received at a credit. If I have 100 shares of stock, I will
look to purchase 1 call and sell 2. If I have 500 shares, I will purchase 5 calls and sell 10. This method will cap
the upside of the RPM, but there are adjustments that can be made if the stock continues to rise.

Income Method #6: This is the second of the Money Nets Income Methods. With IM #6, I will look to sell an
OTM call, then purchase a higher strike call with the same expiration date, essentially creating a Bear Call
Spread, but without adding any risk. We receive a credit for the transaction, but to our broker the trade will
appear as creating a Collar spread with an additional long call. This does not cap the upside potential of the
RPM. IM #6 can be used as a bullish Income Method or as a bearish Income Method.

Income Method #7: IM #7 is selling a near term put against the protective put. This can be done in two
ways: First, as a reaction to an Income Method #1 position where the stock was assigned at
expiration. Rather than liquidate the position, we can potentially re-enter the trade if assigned at the put
strike price as opposed to re-purchasing stock. Second, Ernie has used this as a means to acquire more stock
or generate extra premium... although, this may add substantial risk to the position if it is not covered by a
long put.
Income Method #8: This is more of a neutral adjustment. Using spread positions, IM #8 creates an Iron
Condor position. This can be done outright on top of the RPM (4 separate legs) or synthetically (using 3 legs
and treating the Married Put as the long call leg).

Income Method #9: This is a bearish or protective adjustment to be used if the stock has declined. In this
Income Method we will roll the protective put down in strike price. This will generate income, lower our
break-even price, but slightly increase the at risk amount. Income Method #9 should only be used if you feel
the stock will recover after the initial decline.

Income Method #10: Dividends. Income Method #10 is essentially either a 'Yes or No' Income Method that
you will decide when you are opening the RPM. You are either going to choose to trade a Dividend paying
stock or not. The Chapter in The Blueprint discusses some of the pros and cons of using dividend paying
stocks.

Income Method #11: Known as a Broken Wing Butterfly, we will enter into an IM #5 as described above and
then add an extra long call at a higher strike price and wider spread. For example, on a stock trading at $52, I
might purchase a 50 call, sell two 52.5 calls and buy a 57.5 call with the same expiration. This should always be
done at a credit and will leave the upside open. IM #11 is typically done after the stock has risen, but it can be
used as a neutral Income Method as well if the opportunity is there.

In addition to the information contained within The Blueprint, Kurt has also put together several video CD's
that go more in depth into the principles of RadioActive Trading and the philosophies of the Income Methods:

1. FORTS - Foundations of RadioActive Trading

2. Profit with Puts - Using IM's #3 and #4 to Enhance Returns
3. The Money Nets - Focusing on IM's #5 and #6
4. Combining Income Methods - Further enhance profits by combining Income Methods when you are
making an adjustment.
5. Advanced Income Methods – IM's #7, #8, #9 and #10
6. Combining Income Methods - Further enhance profits by combining Income Methods when you are
making an adjustment.

More about the Mastery Series CD's here: http://www.radioactivetrading.com/products.asp