Thanks very much for the question amdweb82 and for the answers...

Thanks very much for the question amdweb82 and for the answers jrolfe and kastin - I understand that point now. What you both say makes perfect sense.

Kastin - one of the things I want to learn is how to combine strategies to protect capital. Is a bit down the track for me just now but I am looking.

Maybe a next step will be to choose a couple of shares to paper trade and then pick the options - and develop a simple strategy around them. I guess there will be different strategies for different market stages?

I need to work out how to get and read quotes next I think.
I really am starting at the bottom with options:).

I would like to come up with an income generating strategy (maybe options on the XJO or SPI) and a short term living money one (maybe on shares) eventually.

Any ideas about ways to achieve regular income and also 'cash flow' income using options will appreciated.

I do have a very interesting document - written by a generous US trader for a forum of people trying to hone their option trading skills.
He explains how he generates income from options.
He basically writes covered call against his holding and if it is exercised he sells naked puts to get the shares back at a discount. He then writes covered calls and so on each month. He aims to make 2.5% - 3% every month.

If anyone is interested I can send the doc through.

This is a snippet - I have summarized his introduction - the charts are mine.

I came into the year owning the QQQ stocks. There wasn�t anything to do except sell the covered calls early January. The calls were at a strike price of $37.00. If you move out to options expiration day (the 3rd Friday of the month around the 17th Jan. The stock price went up and my covered calls got exercised. I walked away with the premium on the calls which are usually around $0.80 to $0.90 a share. This equates to about 2.5 to 3.0%.
I didn�t have any stock left, so I had to get some more stock if I wanted to write some more calls
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I consider 21/2 to 3 percent return for holding the calls for 3-4 weeks a pretty good rate of return. This is an income strategy. You are never going to make a killing, but the object is to have a nice, steady income flow that will average about 2 to 3% a month; if everything goes right.
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Even in a year like this, which has not been a good one, we are still up over 25%. That is still good for a year like this.
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The reason for this is that on every position you take, you have a 21/2 to 3% advantage. It is sort like being in Las Vegas and you are the house. Every time you deal the cards at the blackjack table, you know that over time, you have a 21/2 to 3% advantage. I think that is significant...