I gave myself a “dividend” this morning on a stock that doesn’t pay one.
Let me explain 🧵
Let me explain 🧵
This morning I sold a covered call on $SOFI.
A call option gives the buyer the opportunity to buy 100 shares of a stock at an agreed upon price.
The seller (me) must hold 100 shares of the stock and must sell if the stock reaches the agreed upon price.
A call option gives the buyer the opportunity to buy 100 shares of a stock at an agreed upon price.
The seller (me) must hold 100 shares of the stock and must sell if the stock reaches the agreed upon price.
As soon as I sell the contract, I collect what is known as a premium.
I now have cold hard cash in my hands for simply selling a contract.
I now have cold hard cash in my hands for simply selling a contract.
But how do you define your risk?
Meet my friend Delta.
Delta is a measure of how likely the option is to end “in the money.”
I aim to sell covered calls with a Delta of .20 or under (20% chance of expiring in the money)
Meet my friend Delta.
Delta is a measure of how likely the option is to end “in the money.”
I aim to sell covered calls with a Delta of .20 or under (20% chance of expiring in the money)
What outcomes can you expect?
There are 4 possible outcomes when selling covered calls.
There are 4 possible outcomes when selling covered calls.
1. Stock ends in the money.
Let’s say you sell a covered call on $SOFI today for a $7 strike price (like I did.)
If the stock closes at $7 or higher, you sell 100 shares at $7.
Make sure your average cost is under $7 so you can profit on this transaction!
Let’s say you sell a covered call on $SOFI today for a $7 strike price (like I did.)
If the stock closes at $7 or higher, you sell 100 shares at $7.
Make sure your average cost is under $7 so you can profit on this transaction!
2. Stock goes on a run.
This one stings.
Let’s stick with our $7 example, if $SOFI goes on a run and closes on Friday at $12, you still have to sell @ $7 and you miss all that potential profit.
It’s part of the game but you can always buy back in and rinse & repeat.
This one stings.
Let’s stick with our $7 example, if $SOFI goes on a run and closes on Friday at $12, you still have to sell @ $7 and you miss all that potential profit.
It’s part of the game but you can always buy back in and rinse & repeat.
3. Stock does not end in the money.
This is an ideal outcome.
The stock doesn’t reach the $7 and you keep your 100 shares & the premium.
You can also go right back to selling another covered call for the next week.
This is an ideal outcome.
The stock doesn’t reach the $7 and you keep your 100 shares & the premium.
You can also go right back to selling another covered call for the next week.
4. Stock’s price crashes.
Covered calls do not offer any downside protection.
If the stock’s price were to tank, you have the option of waiting it out or adding lower to bring down your average cost.
You then could sell a covered call at a lower strike price.
Covered calls do not offer any downside protection.
If the stock’s price were to tank, you have the option of waiting it out or adding lower to bring down your average cost.
You then could sell a covered call at a lower strike price.
No matter which scenario happens,
YOU KEEP THE PREMIUM 💰
YOU KEEP THE PREMIUM 💰
Some things I do when selling covered calls:
• Pick a Delta under .20
• Look for a 2-4% monthly return from premiums on the cost of your 100 shares
• Sell on Fridays if you can
• Sell on green days
• Hold an extra 10 shares so if the stock goes on a run, you can profit
• Pick a Delta under .20
• Look for a 2-4% monthly return from premiums on the cost of your 100 shares
• Sell on Fridays if you can
• Sell on green days
• Hold an extra 10 shares so if the stock goes on a run, you can profit
I use this strategy to make $15-$30 a month with just $650 worth of $SOFI shares.
It allows me to give myself a “dividend” every week even though $SOFI doesn’t pay one.
It allows me to give myself a “dividend” every week even though $SOFI doesn’t pay one.
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