My options journey started nearly 4 years ago, and I love talking about the strategies I’ve learned because I believe they can swiftly improve many people’s financial situations. The information is easy to grasp—all that’s required is the willingness to start and the perseverance not to give up, as there will be both highs and lows.
How I do it
I maintain a portfolio of core stocks, each with at least 100 shares. Instead of waiting for the stock price to increase, selling a covered call on those positions allows me to earn an additional 1.5%-4% each month, depending on how aggressive I want to be.
If I’m ready to part ways with a stock, I tend to be more aggressive. It’s crucial to remember that if a stock reaches your strike price, you are obligated to sell it at that price.
Example
I own 100 shares of Uber with an average price of $40 per share. As of this writing in October 2023, Uber stock is at $41 per share. I can sell a covered call on Uber expiring in 30 days (about 4 and a half weeks) for November 24th at a strike price of $45 per share. Since I usually aim for a 1.5% return on covered call trades, I would be collecting $89.
This is a trade I could execute right at market open before starting my workday, and it would take me less than 5 minutes.
How I sell covered calls while working full time
The reason I can sell covered calls while working full time is that I primarily engage in selling monthly covered calls. This means there’s minimal work once the trade is executed, except for managing the position if the trade goes against me.
Leveraging returns
I leverage returns from successful covered call trades in two ways:
Buying more of the stocks I already own: If I believe the stocks I own are still undervalued, I slowly dollar-cost average into them to fully build out my position.
Buying a new stock: If there’s a stock I like but don’t yet own, I gradually build out my position. My regular income, along with the income generated from selling covered calls, helps me achieve this in a much shorter timeframe.
I always believe that great companies don’t stay at low prices for long. I’m delighted if I can pick up additional shares because of the income generated from selling covered calls. Depending on the stocks you’re buying, consider their potential value in 5-10 years.
Three rules I follow to stay grounded
Always set price target alerts:
- Acknowledge that you won’t be able to monitor your stocks at all hours of the day.
- Price alerts will notify you when it’s time to log in and manage your position.
Always have a profit target:
- A good rule of thumb for me, is to close a trade when it’s 70% profitable.
- For instance, using the example of the Uber trade discussed earlier, closing the trade at a 70% profit would result in earning about $62 from the initial $89 investment.
Stay consistent with your trading plan:
- Emotions in trading can lead to losses and inconsistent results.
- Deviating from established rules, such as the 70% profit target, in pursuit of more earnings may result in staying in a trade too long and potentially turning it into a losing one.
While there is much more to selling a covered call, I am convinced that anyone can successfully sell covered calls while working full time. For additional information, check out this post about covered calls for more in-depth insights.