Early Retirement Question

One of the participants on the “Early Retirement” website asked the following question: “I read an article the other day and it said that covered call and cash secured puts was a way to make extra cash. I had never heard of these things and was wondering if they are worth looking at. For me it would be more something to do in my spare time than investing. From the article it looked like a kind of scam as the author was offering a book he had written on the subject in the article. what is your opinion?” His post was titled: “covered calls and cash secured puts.”

I responded to the discussion thread, and another participant asked this question: “Waynew, can you list one of your covered call trades so people can see how you’re producing income on your portfolio? Say VYM or MAIN or whatever else you might feel comfortable sharing. “

The Example was NVDA

Because I do many options contracts, it is easier to just illustrate the process using one investment. I used NVDA because the YTD income from those contracts is more than $10K. Bear in mind that this takes very little time and very little complicated knowledge. You only have to understand a few basics to be successful in trading covered call option contracts and cash covered put options.

Here is a link to the PDF that I created on Google Drive: NVDA The PDF is four pages long and it shows all of the activity. I use “codes” to describe each type of trade. For example, BCC-26 means that I bought a closing contract for NVDA shares, and CC-26 means I sold a new options contract to replace the one I sold. EXP-26 means a contract expired. That is good news, as it means I can enter a new contract and earn more income. Although I have not traded NVDA puts this year, if I did they would appear as PUT-26.

Current Contracts

NVDA is only one of many contracts. So, for example, here is a view of my Fidelity Trader+ positions screen showing options with expiration dates for today and for September 18. At this point all of these contracts are “out-of-the-money.” That is a good thing. It is likely that all of them will expire and I will then consider entering new contracts.

YTD Options Income

Although NVDA is a powerhouse in my portfolio, there are many other trades as well. YTD options income now stands at $141,890.77. That means I have earned, on average, $3,540.17 per week trading options. Given how little time I spend, this is excellent “easy income.”

Recommendation

Don’t conclude that trading options is difficult or dangerous. The risks, if you can call them that, are that you will have to sell your shares. However, remember that you are getting the price you wanted for your shares when you entered the contract. Furthermore, you can often just repurchase the shares using a cash covered put option contract or a buy limit order.

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