Let's talk about covered calls. And I want to share my desktop here because what I want to cover is that I explain to you exactly what is it? Should you trade it? I will give you a very specific example, and we'll talk about can you do it in a retirement account? Now, covered calls are fascinating, and covered calls are usually the first option strategy that new traders start trading because it is super simple to understand and it is perfect for you if you already have stocks in your account. So let's talk about it. What is it? It complements the current stocks that you have in your account. And we are talking about long term stocks. We are not talking about trading, we're talking about stocks that you might hold for a longer time, like months or maybe even years. So let me give you an example. And the example that I want to give you here is for JP Morgan. So JP Morgan, as you can see during the pandemic got hammered when it came all the way down from $140 to only $80, and right now it's just trading shy of $100. Now, you might have JP Morgan in your portfolio, you might have had it in the portfolio before the pandemic. So let's just go to a monthly chart, because if you look at a monthly chart here of JP Morgan, you see that overall it is a good company, or maybe even you work for JP Morgan and got shares. It doesn't really matter, it applies to any stock, whether it is IBM, Boeing. So if you do have stocks in your portfolio, let me show you what to do, because right now, if you had JPM before the pandemic hit, you're underwater. I mean, right now on this one, you're losing money. Now, again, full transparency, I don't own JP Morgan. I don't hold any stocks long term, I trade between five and twenty-five days, that is my typical holding period. If you want to learn more about this there's probably a link in the description where you can learn about my specific trading style. But this is where we are at. So let's say that you've got it at $120, and $130, right now it is trading at $96. You still have this stock in the portfolio and you hope that eventually, it'll go back up you're not willing to sell it just yet. So let me show you exactly what you can do with this. Let's just say, for the sake of simplicity, that you would buy it today, that you would buy it at, let's say, $96. Now, the capital requirement for this is, if you would buy it right now, would be 100 times $96 per share. So we're talking about $9,600, close to $10,000. Now when you have a stock, it is very easy to understand how a stock moves. If the stock moves up by $10 to, let's say, $106 you make 100 shares that you have, times $10, so this means that you're making $1,000. Now, if the stock goes up by $20, let's say the stock goes up to $116, you would make $100, times $20 because you bought it for $96, right? And you're selling it, or the stock is right now at $116. So you would make $2,000. And if the stock goes down, let's say the stock goes down from $96 to $86, super easy to understand, right? It is 100 times $10, so you would lose $1,000. So how does it work? You're selling one call for each 100 shares that you have in your portfolio. And here's what you do, when you sell the call you choose a short term expiration. And here in this particular example, we will use a 7-day expiration. So we will choose a call that expires in 7 days from now. And we are choosing a so-called "out of the money" call at a strike higher than the current price. Is this making sense thus far? So let me show you what strike might make sense, and then we're gonna pretend to put the trade on. So if you look at JP Morgan right now and you say, "OK, I want to see, I will sell a call that expires on, let's say, July 17th." So right here in a few days, in 7 days from now, that's 5 trading days. So what do you think? How high could JP Morgan go over the next few days? Let's just say that you think it will not go higher than 107.50. So we can choose this, and we'll take an option chain right now and we'll see if this strike price actually makes sense. But if you look at J.P. Morgan, you see this would be quite a significant move for JP Morgan. It means that it would have to go up almost 10%, now a little bit over 10%. Is this likely over the next few days? Probably not very likely. So let's actually go to a trading platform. I'm gonna log in right now and I'll show you exactly what this trade would look like and why it might make sense for you to put on this trade because there are some very specific examples. So there we go, there we have JP Morgan. And at first I want to say, "Okay, what happens if we put on a trade and if right now we put on 100 stocks?" So here, as long as JP Morgan goes up, we are making money. If JP Morgan is going down, we are losing money. Super easy to understand. Now we add to this a covered call or a call. So we are selling a call right here with an expiration of July 17th. So as you can see, this is in 7 days from now. So a short term expiration here, and we'll pick a strike price where we say it is not very likely that over the next 7 days, which is 5 trading days, JP Morgan will go above it. And I believe this is where we said a $107.50, let's do $107 right here. So this is where we would sell a call. And as you can see right now, we would receive $0.55 for it. So this means if here we buy the 100 shares for $96, or let's say we still own them, right? And at the same time, we would sell the 107 call that expires 7/17, so in 7 days for now. The capital requirements for this are exactly the same. So the broker will not ask you for additional capital requirements when you're selling a call against stocks that you're owning. So here, it is still $9,600. Now, here's the deal. You are receiving right now $55 if you are selling this call because options are being traded in 100 packs. By the way, if you aren't familiar with options and you would like to have an Options 101 course, I got you covered. In fact, that is for free. If you go to rockwelltrading.com/101, I'll send you an Options 101 course, there's 12 lessons completely free just enter your email and your first name so that I can address you by name and this way you would get this course that explains you more of what all options are about. So if the stock goes up to $100, you would make the $1,000 that you make on the stock, plus you make an additional $55 that you receive as a premium by selling one of the calls. Now you might say, "$55? That doesn't make sense." Well, bear with me for a second because you'll see why this might make sense for you. So as you can see, you're increasing your profits by $55. Again, not a whole lot. Admit it, but wait for it. It'll get really, really good. So the same is true if the stock goes up to $116. So in this case you would make $2,000 plus $55 so you would make $2,055. Now lastly, of course, if the stock is going down, you lose $1,000, but you're keeping the premium, the $55 so therefore your loss gets reduced to $945. So it is still a loss, but as you can see, the loss is smaller than here. Now, again, the question is, why would you worry about $55? Well, let's continue our math. So what you're doing here is you make $55 in seven days. So this means if we take the $55 divided by 7 days, that you make approximately $8 per day. So based on the initial capital, so if you take the 8 and divide it by $9,600 that you had to invest in order to buy the stocks it is not a whole lot, approximately 0.08% per day. Now, you might say, "What the heck? That's nothing." If you take this 0.08 times 360, you would make an additional 30%. Now, you might be wondering, "Why do I do it?" Now, this is in addition, whatever you make on this stock that is going up. So what do you think? Does this sound a little bit more exciting if you make an additional 30% per year? The $55, that's not the deal. The $8 a day, it's not a big deal. And there are possibilities where you can make more money, where you can make $10 a day, $12, $15, sometimes with the right stocks you can even make $20 a day or more. So this then means that you're making not only 30% additional per year, but you would make 40%, 50%, maybe even 60%. Should you trade it? Absolutely if you're holding stocks in the long run, because it is almost like free money. Now, one of the things, very important that you need to understand when selecting the strike price, and you see we selected here a strike price of 107, if at expiration if the stock is higher than the strike price that you selected, you have to sell the stock at this price. If it goes up to 107, you have to sell your shares for $107. So you would only make $1,100 plus $55. So this is the one danger of trading a covered call because you might lose the shares. But here's the deal. What can you do the next day? The next day, you can buy the shares again, especially these days where stocks are super inexpensive. So I wouldn't be too concerned about getting called away because you can buy them back the next day. If you like this idea of covered calls I decided to do a class on covered calls to show you exactly of how to do this. Not quite sure yet although, to be honest, if I will do it. But you can register at rockwelltrading.com/blueprint. This is only a waitlist. You can register on this waitlist and if I see that there's enough interest, I'll do the class. Now the class will be super inexpensive, it's very affordable. It'll probably not even cost $200, haven't decided yet. So just let me know if you're interested if so, put your name on the list here, and then if there's enough interest I will announce the date and also the investment for this class here. And I'll explain in detail what covered calls are, what strike price you should select, for which stocks that make sense, and we'll also talk about the poor man's covered call that we covered in the previous video. So just to wrap it up here, first of all, what is it? What is a covered call? Well, it compliments the current stocks that you have in your account. You would sell one call for each 100 shares that you have in your portfolio. You choose a short term expiration of 7 to 14 days. Choose an out of the money call at a strike higher than the current strike price. Should you trade it? Absolutely. Here's a specific example, and now the key question is, can you do it in a retirement account? And the answer is yes if you can trade options. And in order to trade options, you have to tell your broker that you want to trade options. So, yes, it is possible to do it in the retirement account. Talk to your broker because your broker might ask you, "OK, what exactly do you want to do?" And he has to give you special permission. Anyhow, hope that this video helps and if you found this helpful do me a favor and click on like, and maybe you want to subscribe to this channel. Click on Subscribe, hit the little notification bell this way you get notified whenever I release a new video. And there's probably a few videos right now, hopefully popping up on the screen. So click on any that sound interesting to you and I'll see you in the next video.
