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Ep 99: Trading Covered Call Options with Stocks You Own

August 25th, 2016

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Hey this is Sasha Evdakov and welcome to another episode of let’s talk stocks, episode number 99, and in this episode we’re almost at a hundred. We’ve done more episode than a hundred, but just since I started counting, we’re almost at a hundred.

Episode number 99 is all about trading covered call options with stocks you own. In today’s video I don’t have my green screen set up because I’ve decided to rearrange a few things in the office and make things a little bit better. So things are in a changing dynamic mode, so maybe within a couple of weeks I’ll get everything set up and we’ll go back to doing some things with the webcam.

In this episode we really want to take some things on screen and look at some options, if you’re not advanced with options, don’t worry, this is a fairly basic options training video, and it’s going to give you some insight to my options course, which will be coming out soon. It’s just a huge massive course that’s taking a long time to create. I’ve been working on it for the last year and there’s a lot of knowledge and information.

With that being said, this options strategy, jut trading covered call options, will give you traders or investors a little bit of an additional income boost from stocks that you already own, so these are great to do in a retirement account, these are great to do in just a basic account as well, but it’s really stocks that you plan to hold for quite a while, so you definitely want to do this kind of with stocks you already have in your portfolio. But stocks you also don’t mind getting rid of.

I’m going to share with you how to reduce that risk as we go through this process, but it gives you a little bit of an edge to making a little more money as things are just standing still or if things pull back a little bit, you can collect some premium, so you will need to have option capabilities and depending on which broker you use, you’ll probably need to be able to sell options and sell those option premiums within your trading panel, so contact your broker if you don’t know what that is and we’ll go through the lesson and you’ll see exactly what I’m talking about and you can describe that to your broker and get more insight.

I’m going to share with you how this works first and why it’s a little bit better than just holding on to the stock and allowing it to pull back and give you a big overview picture and then I’m going to go into the details and the mechanics behind it.

Before we do that, I do want to let you know that I posted some new critical charts this morning, so if you are a member, go ahead and take a look at some of those. There are eleven charts that have been posted. So take a look at those and enjoy the charts.
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If you have any additional charts that you want me to take a look at, review, show you some things or the technical on the chart, then please feel free to just reach out, seed me a message or contact me through the website and I’ll be sure to put them on the next critical charts posting.

With that being said, let’s look at the market right now, it is right around 2:30 here in the afternoon, and the market’s pulling back about three points on the S&P, so it’s kind of getting that whipsaw action happening. Mostly due to Yellen and some of the things that are coming out tomorrow, so it’ll probably do nothing up until tomorrow.
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We’ll see, you never know, things could accelerate and it could kick in, but in general it looks to be a little bit stable.

Let’s just use a simple basic example of trading a stock and looking at a stock and how it works. Here I’m in a simulated trading account, so that way I can put on some trades without risking real financial capital, and do some play around for you and I’ll give you some insights to that.

Let’s just pick any stock, and I’m just going to use Facebook in this example, just because it’s a liquid stock, it’s easy, but you can use this strategy in any stock that you own and plan to hold for let’s just say, three, six months, 12 months, two years, four years, anything above two months I would say, above one to two months, it’s typically a good approach.

Buy in lots of 100 shares

In order to do this strategy, you typically want to purchase or have some stock shares, so what we need to do is we’ll go ahead and buy stock shares and what I typically want to do is buy it in lots of 100.

If you do it in lots of 220 or 350, you won’t be able to do this strategy perfectly, and the reason for that is because option prices are priced in lots of 100 shares of stocks, so one option contract controls one hundred shares of stock, and that’s why typically people buy and sell in lots of 100.

Here in out example, I’m just going to go into doing 200 shares, so what I’ll do is I could go ahead and put it in at the market price, or the limit price, totally up to you how you want to trade it, I’m just going to do the market, since I’m just trying to get filled in, and this is not a fully real trade, but I just want to show you how the strategy works, so we’ll go ahead and put that in on that order.
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My option order was filled, buy 200 Facebook hares, and if I go and analyze Facebook right now, and we get rid of some of these simulated trades right here, by the way, this is the think or swim platform for TD ameritrade, I decided to use this to always share my lessons with, because a lot of people have it and it also gives you great capabilities.

But if you’re using a different broker or platform that’s fine, the strategy and concept is still the same. It’s just where the tools are, or the buttons might be a little different.

Here I’ve invested in Facebook, I have 200 shares, you can see here according to the 200 quantity symbol. I had 200 shares of Facebook stock, and I got it at a price of $123.92
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That’s my Facebook shares that I have available, and the current price is $123.93. The thing you’re looking at is a risk profile and this is just a basic risk profile for what happens if the stock price goes up, so if it goes up to $130, you go ahead and you make $1227, which you can see indicated right there, right by my mouse cursor.

If it goes down to $120, I would lose about $811. So again, just buy the shifting scale, you get to see this movement in the stock price.
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Of course if we’re investing for the longer term, we don’t really want our stock price to go down to $110, $105, but sometimes it happens and if you have a stop in place, fantastic and that’s great, that’s one strategy.

Use this strategy when the VIX is higher

But if you’re really looking to hold on to the stock, by selling or trading covered call options, it allows you to make a little bit of money to compensate for a downward move or if the stock does nothing for the next, let’s say month or two months or three months, if it does nothing, you can still profit from it.

Typically I like putting on this strategy when the VIX is a little bit higher, the higher the VIX, the more option premium you’ll be able to get, and that is simply because option prices then become more valuable. But in this discussion we’re just going to look at it and put on a sample here.

Facebok

Here’s what happens, if I look at the chart of Facebook and I start looking at this price, so you can see the stock price has been kind of moving, let’s just say sideways, right around $123 – $124, we got into the $126 level right around this price level, right around $126, but it’s kind of been moving, you could say more than sideways. And because of this, I could say, why don’t I hold on to this stock but I can sell premium at about $130, maybe 135 if possible and make a little bit more money.
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Of Couse, the probability, if you’re studying statistics, the probability of it hitting let’s say $135 – $140 is a lot less than the probability of it hitting $130.

What you’re going to do in this strategy is be a net seller of options. The way it really works, I have these different days here and what I can do is I can go ahead and look at these different strike prices, and I can see that here 22 days out, I have a 130 contract, I’m going to get about 25 cents, I can sell a single and I can go ahead and analyze that trade, and now what it allows me to do is go ahead and sell two, because we’re at 200 shares.
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Of course I could sell one, but I sell two and then once that stock hits $130, I go ahead and cap out and the stock would be given to somebody else, so if it gets to $140, it would be given to somebody else at the $130 price level, because what I’m doing here, by selling these contracts is I’m getting 26 cents right here, you could see at the lower left area, you could see right here $50, $25 which is indicated by that premium. I’m getting $25 per contract, and I have two contracts, so that gives me $50 at expiration on these option contracts, and that is if the stock stays below $130 because we’re selling at $130.
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If it gets above it, I’d be at $135, if I didn’t have the stock, I would owe money, I would lose about $1000, that’s why this strategy is based on you having the stock shares.

Here, if I have the stock shares of 200 shares, and I sold at the 130, it allows me to collect an extra $50. Not a lot, but as you get more shares, more contracts, then of course this can ramp up, and it also depends on how far out you sell them.

Let’s just say I went to October, in October we have 57 days to go. Right here, if I sold 5 contracts at a $1.48 apiece, I could make an extra $740 as you can see right there at expiration.
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Selling premiums allows you to make more money

They need to expire for you to make that full amount. If the stock goes down, of course what you can do is cash out these and collect the $740, because the white line here is the current line of time value, and the green line is at expiration. So of course you could get out of these early, and if you got out of this early, and it was at 128 you’d be at a loss of about $845 or so.

You could do that, but you could see that this would allow you to make an extra $740 on 5 contracts. If I only did 2, it would only be about $296, but that’s an extra $300 within a couple of months, with just owning the stock and just selling this premium.

If the stock stood still and did nothing, you would get nothing. By selling these premiums; it allows you to make more money.

How it really works

Let’s break this down at how this really works. So let me slow things down a little bit so we can break it down. In general, what you’re doing when you’re normally investing, you’re buying shares. As a regular investor you buy shares of stock, and you’re looking for things to profit to the upside or to the down side. You need movement in the stock.

If you don’t’ have movement, you have no profits, unless you get a dividend. But in general, you need movement for stock appreciation.

When it comes to trading options. You’re also looking for movement, but you can also look for time value and time decay, which is how most people and most traders make money from options.

Since they have a time decay value, if you look here in September, this one has 22 days until expiration, this one has 57 days until expiration, and then they have option contracts that go out even further.
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In general, the decay of options starts to really happen right around the 50 day – 40 day mark, 30 days, they continue to accelerate. That curve continues to accelerate faster and faster.

Most people are purchasers of options

Typically most people, beginning traders, they are a purchaser of options, and the way they do this is they look to let’s say purchase an options and they buy a single, this is not normally the way you want to trade options, because what happens here is, you have this green line is your expiration option graph at expiration, which would be the third week of October.

And the white line is your current day, and the day as it starts to shift, you’ll notice that it gets closer to the green line, and this is due to the theta, so you have a loss every day of about $1.46 And that continues to typically accelerate, especially if you’re in this level. You can see that’s 3.90, 3.95, 4.00, 4.11 and so on. So that continues to accelerate.
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Let’s go back here to the 25th, and make it back to the live price, so that’s our current price. So in this situation you’re risking about $55 to potentially make an unlimited amount of profits if the stock price goes to the upside.

Selling contracts

But if you’re realistic in stock price movements, if you understand that most stocks aren’t going to explode all the way up to the moon. That’s just not normal, it’s not natural. It can happen from time to time, but it’s not really normal or healthy, so in this case, if you’re a person who understands this concept, what you could do is sell things against it.

When you sell something, let’s go to one contract here, what you can do is, you can sell a contract at an upper price and then if the stock is below that, you can go ahead and collect the premium. So in our case here, by selling this single call contract, we’re going to collect about $1.51 this is at the $130 strike price, if I went to the $135 it’s going to be 54 cents.
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And that is simply because the probability of it hitting $135 is a lot less. And if I go to the $130 probability, I have about a 25% chance here, where it’s going to work in the money, which means it’s 75% chance for me to be successful if I’m selling it. This is probability in the money.
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I could of course change this to probability out of the money, so you could see right there, about a 74% chance.

If I sell the $135, I have about an 88% chance of success, which is still great, but you could see the price difference is I get three times more if I go with the $130, so the value starts to drop off.
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I personally like to look at this as in the money, but you can see that as you continue moving further and further away, the chance of you hitting the Facebook stock within 60 days to $170 is very unlikely.

That’s why the premium is really not worth anything. So you’re selling premium tighter to that stock price. And if it stays under it, you collect that premium.

Make sure you own the shares of stock

If you did this naked, without owning stock, this is where people get in trouble. Because if it gets to $150, you lose $1500. That’s where the problem is, and that’s why you want to make sure you own the shares of stock. And then when you sell contracts against it, it allows you to collect that extra 54 cents or so. If we went to the 130s, it’s 1.52

Now what you do is, first you buy the stock, and then you sell the premium, so now the advantage of this is, and we can sell just one or we can sell two. And the big advantage is, if the stock price simply just stands still, we continue to collect money. So you could see that here on the lower left area, I would make if this option and the stock stood still, $350. If I stood still, I’d made $350.
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If it moves up on me, which would be helpful, up to the let’s say $130 would be almost my max of what I would make, if it got to the $140, I would make the most. And that is because I’m collecting premium and I’m collecting stock appreciation.

If it went to the $135, what would happen is my stock would be given to somebody else, if I sold these contracts, would be given to somebody else at the $130 price level. So I still make the value and the profit between now and the $130 level.

But that stock, since I sold these contrast, would be given to somebody else, but I also get to keep this $306 from selling those contracts.

Different scenarios

Here’s how these different scenarios would work. So let’s break this down if we just had the stock. If we just had the stock right here, and the stock stands still, I get pretty much nothing. If it goes up to $130, I would make $1280, if it goes up to $135 I’d make $2011. If it goes down to $120, I’d lose $781, if it goes down to $115 I’d lose about $1750.
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If I go ahead and sell two contracts against it at the $130 here’s what that now looks like. So if we go to $130, I can make $1522 at expiration. If it goes to $135, I’d still only make $1522, if it goes to $150; I still make that same amount, because I’m capping my earnings at the $130.
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If it goes down to 120, I lose only about $600, and that is simply because I make a little more from this option contract. And if it goes down to 115, I lose $1500 roughly.
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The advantage of this strategy

The advantage to doing this is, if you believe your stock is only going to have a short term pull back, this is great to do, because look at it this way, if we have a $120 price point, where the stock goes down without the option premium, if we go to the $120, I’m losing about $760.

If I sold those contracts at the $120 price level, I’m only losing about $472 and take a look right here, right now it says $603 but that is at the live price, but at expiration, it would only be $472.
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You can see that by doing this $474 versus at the 120 here, about $700. And that is because of this $308 extra dollars I’m making, so you get to keep that, that’s like somebody else paying you for potential to buy this stock if it breaks above that price level.

So if it goes down to 120, you still get to just pocket this money, it’s like something you get to pocket every month. Like an internet bill, the internet company gets to pocket this bill. Now, if they have down time, thy’regoing to owe you. They might owe you for a week worth of something.

The same here, if it goes against you, you’re going to owe somebody some money. And that’s why you want that price to be under the 130 level. So you’re kind of capping your earnings right there but, if the stock price goes down only to 120, at least you get to collect $308 from two contracts.

If I only did one contract, it would only be $151. If I did two, you’re looking at $302 because the price is shifted a little bit.
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You could just do one if you wish, and then if the stock goes higher you would only be obligated to get rid of 100 shares. But if you did two, it would cap you completely on your profits at the 130.

Looking at it from this side, here’s the other approach. If it goes up on you. So if it works in your favor and you actually held on to a great stock, and stocks continue to moving higher, now the stock gets to $130, now you would’ve been profitable at $1211, or $1220.
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If it goes to $135, you would’ve been profitable $2225. Now, if I cap that at $135, you would only be profitable $1500, so $1500 versus $2200, so you’re kind of losing a little bit of profit potential there, by selling these contracts.
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Look at the odds

But again, remember, the chance of it hitting that $130 is still only 25%, so you have kind of a 75% chance that it’s going to work out fine. So you have to kind of look at the odd stat against you and for you. What is the potential, because here, if the stock pulls back, you still collect about $300 from it. If it stands still, you still collect $300. If it goes up a little bit, you collect the $300 and you get stock appreciation and you get to keep your stock. If it goes to $129.99 you still get to keep your $300, and you get to keep your stock and then it can continue to appreciate after that. This is based on the expiration date.
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If it gets to $130.05 then you’ll get rid of your stock, because you’ve sold these contracts, your stock will be gone, the next day after everything clears, but you still get to keep your $308. And you sold your stock at $130, so you still get the appreciation at the $130 level, between that $5 rise and gain. Making you, again, $1220 or so. So you still get that appreciation value, but you also get that extra $300 from here. So giving you $1500.

The only time you really lose out on this deal is if the stock goes and explodes, let’s say past $130 in a big, big way.

For me personally, the way I look at it is, if it goes to $135, I still was profitable. If it goes to $140 I still was profitable. If it goes to $145, it’s kind of, you’ve missed an opportunity, but you’re still profitable.

The other way is if it goes down, yes you’re losing stock appreciation, but you get to make $300. If it goes down further, again, you’re still making your $300 and if it continues you still make your $300, which you could take and buy a few more shares if you want, but in general, you’re at least making $300 if you still plan to hold on to that stock at the $110 level.

If I look at Facebook here, and if I say, it can get to $120 and I don’t have a problem with that, so that still gives you time to sell those contracts. So you don’t mind getting rid of your stock at $130, but you also don’t mind coming back to $120.
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You’ll get some money even when you lose

If the stock went back to $120 you would lose, let’s say $783 or so. But this way at least you would only lose about $485, because you still make $300. So you wouldn’t be at a big of a loss, you just constantly, every month or every couple of months, depending how far out you sell the premium, you could go out, you constantly make a little more money.

Now, I wouldn’t go past 60 days. 55 or 60 days is pretty good. You could sell these at a later time, like November. It allows you to collect even more premium, so here you could see $3.60, which is going to give you a total of $720.
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But the probabilities are less in your favor, because now the decay or the premium that you make in November at the $130 it’s now 66% chance that you’re profitable or that it’ll work in your favor, rather than here it would be a 75% chance. So you have a higher probability, because there’s more time for the stock, and all it needs to do is go up $6.

That’s perfectly fine, you can still do this if the tock stood still, what could happen is, let’s just say the stock stood still for a few days, because here you have the theta, the theta is working positive in your favor here. Rather than when you buy contracts, you’re at a negative theta, but here, since we’re selling, we’re at a positive theta, s as we let things wait, and if it just hangs out here, if it goes up $2, down $2, you would be at $170 profits and what you could do is get out of that position and then move this from $130 to $135, because time value continue to decay.

There’s no reason why you wouldn’t sell option premiums

That’s how that works, so if you have stock positions, if you have multiple stock positions in your account, let’s say Facebook or Google or Netflix, some popular companies. If you have some poplar companies that trade options, or even indexes, there’s no reason why you shouldn’t, couldn’t or wouldn’t sell option premiums or contracts at the higher price level.
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If you’re worried or scared, that they’ll take it away from you, what’s the big problem? What’s the risk? The risk is that they take it away from you, and if it hits $130, you’re still profitable on your stock, you still collect those $5, and you’re profitable on selling your premium as well. So you’re still profitable in that way, the main thing that you’re worried about is, maybe I’ll miss out the gains from $130 to $135 or $130 to $140.

Don’t leave money on the table

If you’re worried about that, what you could do is rather than trading at the $130, you could go to the $140. You’re only going to make 17 cents of premium, but why wouldn’t you? It’s milking it, its milked money, and its bubble gum money. Whatever you want to think about it, give the money to a homeless person. However you want to think about it, it’s perfectly fine. But it’s an extra 17 cents. Don’t leave money hanging around the table.
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And here, if I go to the 140 level and I go back to my October, 17 cents, you don’t see that just lying around, especially when we’re talking bigger money, when we’re trading larger companies. So here, I’m making $34, it’s to big money when it comes to absolute dollar value, trading in the market.
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That’s money. I’ll give it to you that way, its money. $35 is $35. But will it buy you one months’ worth of internet? Probably not. But it’s still money. Don’t leave money on the table, that’s the thing about this business. You have to learn how money is made. And for the 3 minutes that it takes you to put on this trade to sell that at the $140, which basically means that stock has to explode to $140, so that’s another, from here to here is 6 points to 130, plus another 10, that’s another 16 points that the stock has to explode in the next 60 days.
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And if you kind of break it down of how the stock has been moving, in the next 60 days, it really just needs to start exploding and moving to the upside, so more than likely it’s going to have a pull back and this and that, so in general, why not collect an extra $34?

If the stock is moving to the upside, or you have a stock, it’s not doing much, what you could do is sell some premium, you’re at the $140, you make an extra $17 so what I can do is, I’m going to do it this way to show you a little more of an advanced trade.

Synthetic split

What I’ll do is I’ll split this, and this is called a synthetic split to covered call options. What I’ll do is I’ll sell one contract at the $140 in October. So this is October 57 days. What I’ll do is I’ll fill this, and now we’ll see if we get filed.

I got one filled, so I could just do one, but this is the $140, and then what I could do is another one at $135, and that will kind of give me a synthetic 137 protection.

I’ll go head and sell one single right here. It’s all about learning to be dynamic, and this could be $135, because I could see that there’s no $137 price level here. So I split my shares and that’s why I did two, to show you this example.
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Here what I could do is split this at the $135 and I get 53 cents for that. So you can see how this creates a little bit of a rounded or corner lake here, what I’ll do now is put the three 100 shares, doesn’t matter which 100 shares. I’ll go ahead and fill that in, and now I have the one at 135. So I have two call contracts, and there we go, I’m capped.

I have one contract sold at the $135, and then I have another one contract at $140 and that kind of gives me a little bit of a synthetic position at the $137ish price level.

And what I’m doing is I’m collecting some premium, and how much premium? It depends where the price is, but roughly about $70.
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I’m doing $70 worth, because the collection of the $135 is 53 and then the collection here on the $140 is 17. So that will give me my $70 in premium at expiration.

Of course we move today’s date back to the 25th, so right now I have zero, or 35 cents, and every day I make about $2.31 from this decay, as time continues, that value will slowly start to decrease, but I continue to make more.

If I was over here at a negative value, that theta would actually be a lot larger, because that’s at that peak or corner. And you can see that that theta continues to accelerate there as we get closer and closer.
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That’s what you do when you’re selling option contracts and premium, I don’t’ see why you wouldn’t do this if you have stocks and positions that you’re holding on for a while, because you could still go really wide and still allows you to appreciate in capital.

The downside of this strategy

The disadvantage of course, is, if that stock explodes really far to the upside, $160, then you have to kind of miss out on that gain from $140 to $160.

The other thing is, if it goes down to $105, you’re going to lose quite a bit on your stock position itself, let’s say it goes to $105, you lose about $3800 on that stock, but your positions here would be very favorable.

What you don’t want to happen is, it goes against you, the stock goes down, because here you’re still looking for the stock to go up. What you don’t want to happen is if it goes down against you, and you’re down about $3600, so what you do is then get rid of the stock, and now the price would be here at $105, and now you’re left with this.
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Because you could just do it this way and say, I don’t want to take more losses on the stock. And then that stock starts to go back against you, and now you’re in an inverted position and you create a secondary loss, because now you’re losing again, when that stock continues to go back up.

You don’t want to flip flop a lot on these kinds of positions, because you don’t want to get yourself inverted. In that case, just kind of collect your profits from the premium, and take your money and run and if you’re worried about your stock position, then just simply get out. But in general, you could see how this is a nice way to collect a little bit of an extra, additional money from a safer position.

And of course you could’ve done the 130s if you really wanted to, it’s a little more risky, in the sense of, you make a little less, but you make more on the premium side. So it’s a tradeoff. But it just comes down to what’s your risk, what is it that you think the stock is going to do, how is it going to move?

By selling this premium it allows you to just make a little bit of extra money, a little bit of extra pocket cash to go out for dinner, take your loved one out, or donate the money to children’s books and backpacks, because we have all this back to school now happening.

Don’t sell more than what you have

Whatever it is that you want to do; you can make a few extra dollars just by selling these premiums. And if you had, let’s say, 1000 shares, then of course you could sell 10 premiums and contracts, and you could do 5 at 135, you could do 5 at 140 and that will give you your 10, you might only do just 5 and then the other 500 shares you just hold on and if it continues to move higher, then at least you have those remaining shares that continue to appreciate. So you could split it however you want.

What you don’t’ want to do is just sell more than what you have on the shares, and that is because then now you’re really getting into selling option premiums.

Let’s just see here, if we go ahead and we sell another one, another single, you’ll see what’s going to happen here is, if we just go ahead and keep selling more contracts, you can see that now, this graph, for it to go up, it’s actually you lose money.
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If I don’t have that, let’s just bring it back, you can see here, at zero, we have our back to normal position. And now, if I continue to sell more, you can see how that curve now becomes downward curve, so you’re actually going to then lose money at that price point.
2016-08-25-ep-99-trading-covered-call-376
If you start selling more and more, it kind of converts it more to a straddle strangle kind of thing, or almost like a butterfly in a way, but without the wings, so you start looking at something like this and you start capping it and having problems the other way, if the stock explodes to the upside.

Instead, I’d rather look at it this way, where now, if the stock stands still, I win, because I make that extra $70, if the stock moves up a little bit, I win, if the stock moves up a lot, I still win.
2016-08-25-ep-99-trading-covered-call-381
If it moves down a little bit, I still make my $300, so I kind of win, but I kind of little bit lose, let’s just say break even, even if it just moves down a little bit. If it moves down a lot, I lose, but I don’t lose as bad as if I didn’t have the option premium, because I’d lose worse if I had only the stock. So that’s kind of those things to watch out for when trading the options. Those are the risks that are involved.

If you have these contracts on, and it goes to $145, you’re going to get that stock removed from your account at the $135 and the $140 level. But, at least you collect the premium. If it stands still, at least you just make the premium, because it stands still right there, and if you look at your profit pictures, that really should clear things up.

I hope this video was a little bit helpful, I wanted to keep it simple for those of you that are trading stocks or have basic investments, just to show you how you can make a little bit of extra pocket cash or a little bit of extra money or a little bit more into your account, as you’re investing in stocks, by just selling that upside premium on the stock position.

That’s the way that you would do it, because now you collect a little bit of an extra premium and money from when that stock just stands still, or even moves up just a little bit, it still allows you to really capture a little bit more of money from the stock not doing much, or kind of moving up or down little bit, allows you to compensate for those things.

I hope this was helpful, insightful and you got a little more from options and trading options, because this is the way selling covered calls really works and you can build upon these strategies.

Of course there’s other things that you could do, like doing diagonals, which is a little bit more capital intensive, but it’s a little more complicated than just buying stock and then selling the calls against it, this is kind of a really basic strategy that anybody can do, and you can see that it’s pretty simple.

Netflix

If I go into another stock trade, I’ll just show you how this works. Let’s just say here I have Netflix, and right here I go ahead and first you start out with the stock, so let’s just say I have 500 shares. I have the stock, and now I’m filled in the stock.

There’s my Netflix position. If I want to sell just 300 shares, I could do that, so here I am in Netflix, I could do the $105, $110. Let’s just say I do right here the tight ones, and then I sell a single, and let’s just say we’re going to sell three of them, confirm and send that in. And let’s just see her if we get filled. There we go, we got filled.

Now you can see that I’ve only protected or sold 300 shares. So if this goes past it, past the $105, I will still have 200 shares remaining. But you can see how this allows me to now make about an extra $945 from just having and selling those upside movements in the stock.
2016-08-25-ep-99-trading-covered-call-415
If I sold more, I’d make more, obviously. But this I a tighter spread, it’s only about 7 points away. So chances are they would take the shares away from me, but why not? You make an extra $1000 and you still have200 shares remaining if it goes in your favor. But if it goes down, at least you get to still pocket that $945

Good time frames

That’s how you do it, pretty simple, easy, doesn’t take a lot of time, it just takes a little bit of time to understand the concept, but then once you have it, you can do this for the rest of your life. That’s it. Just every month, or every 60 days, 40 days, whatever your time frame is. I would say, a good time frame is anywhere between 30 and 60 day. You can put it on 45 – 55, depending on the market conditions.

You could put one on today, one up tomorrow and slowly build up to three. Or one this week, one next week, one the week after. You can do it that way. But it just gives you a lot more flexibility to make a little bit more especially if that stock isn’t really doing much or the market is just sideways.

Hopefully this was beneficial. If you’re not doing this in your account, I highly encourage you to at least research it. I’m not saying you have to do it, but at least take a look at it, if you’ve never heard this before, because there’s some potential there that you could do and just make little bit of more money for your own personal retirement and enjoyment for your life, or at least for somebody else’s life. Maybe a loved one.

Author: Sasha Evdakov

Sasha is the creator of the Tradersfly and Rise2Learn. He focuses on high-level education speaking at events, writing books, and publishing video courses on business development, internet marketing, finance, and personal growth.

I'm Sasha, an educational entrepreneur and a stock trader. In addition to running my own online businesses, I also enjoy trading stocks and helping the individual investor understand the stock market. Let me share with you some techniques & concepts that I used over the last 10+ years to give you that edge in the market. Learn More

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