Low Risk Options Strategy For Small Portfolio That Can Make You Thousands!

so the poor man's covered call why i love it how you can literally make your first one today today i'm going to show you all the steps on how to complete the poor man's covered call show you some things that you have to overcome some roadblocks and some hurdles that i see inside the comments section of people not being able to perform the poor man's covered call give you those insights as well some side notes and some thoughts that i've learned along the way when trading the poor man's covered call it really is a great option strategy what's up guys welcome back my name is brad i'm glad to have you here i've made videos about the poor man's covered call before i think actually one of them is my most viewed video and after a year of reading through the comments section it was definitely time for a little bit cleaner version a little bit more step-by-step and also to get down into that comment section and answer some of those questions that i hear over and over again about the poor man's covered call although the strategy can be used by beginners i know many beginners that are using it especially inside my discord i am going to assume that you know some basic things about trading options right what to call what to put expiration strike prices things like that i am going to use that vocabulary inside this video if you don't know and you're still learning options and you're not really sure about all those things i have a one hour and 44 minute video here on youtube i will link it down in the description in the comments section maybe i'll even pin it up here go check that out learn a little bit and this strategy will be here when you're ready to start trading it first and foremost guys the poor man's covered call is kind of like a nickname right option strategies there are so many different names and things we hear but at its core like if you were gonna google this i mean i guess you could google poor man's covered call but all this is is a diagonal debit spread and this is different than a call spread because in a debit spread we are going to pay more premium we're going to be buying options in this strategy so we are going to need to pay out premium but we're also going to collect it as well inside that poor man's covered call but the net is going to be a debit we are going to end up paying more and hoping for greater returns in the future now why do this as opposed to just buying an option well when you buy options you need to pay premiums and some stocks have really really high premiums so what this does is it lowers the financial barrier to entry when buying options right if you buy an option you have to pay some premium now if that premium is a ton of money but you can go and now sell a call against it and receive premium as credit those two are going to offset right decreasing the amount of money that you need to get into the trade so that's why people are going to do spreads as opposed to just buying options it really comes down to that premium and limiting the amount of premium that we need to pay to get into the option now i just mentioned the credit spread guys there's many different types of spreads with many different names there's vertical spreads there's horizontal spreads there's bull call spread the name doesn't really matter that much it's more the process and the goals and the things that we want to achieve inside those options so many people like want to get down in the comments and list all the technical names for the poor man's covered call for me diagonal debit spread is good enough or like i said just google poor man's covered call and you you'll find it i promise so why do i love the poor man's covered call on top of just lowering the amount of premium that i'm allowed to collect number one i love leaps options long-term equity anticipation securities please guys when talking about leaps do not forget about the s it drives me crazy it is a pet peeve of mine the s does not make leap plural it is part of the acronym anyway i had to get that off my chest because i see it everywhere got i love leaps i love the leverage of a leaps option i've made videos about why i probably will never just come out and buy 100 shares outright ever again to get the leverage of those 100 shares at a very very small discount i just i love the leaps option i really really do and that's yeah part of the reason why i love the poor man's cover call the second reason is i love collecting premium like i like making money you guys are getting paid so when we have this leaps options essentially we're going to be start selling calls and using that leaps as the collateral we know that when we make a standard covered call we use 100 shares of a stock we own and then we sell calls against it well this is a way for us to sell and use the leaps as collateral and now sell calls against it and i'll get into that in finer details in just one second okay step one you need to be able to trade spreads inside your brokerage okay and when trading options to protect you you often have to go in and apply for options trading or just enabling i'm pretty much the easiest barrier to entry i've seen is robinhood like robinhood you just go to investing you scroll down a little bit until you get the options and you ask for it they're going to ask you a couple questions if you want to lie and put yourself at risk go for it but inside robin hood and many other brokerages you need to be able to trade spreads now you're not going to call robin hood and be like why can't i make the poor man's covered call no no you need to be able to trade spreads i know that in fidelity i needed to do a paper application like it was a big deal to be able to do that i know weeble does not allow you to trade spreads at all m1 finance has no options whatsoever so we need to make sure that we can trade spreads and like i said if many of us are using robinhood it's just level three you gotta answer a couple questions be honest to protect yourself so you don't come out and hate robin hood later after you screw yourself over like i said step one be able to trade spreads if you don't have this level three enabled i know i get a lot of robinhood users they say you'll get a message that says do not have enough collateral or do not have enough shares to make the short call right just go in find level three and you should be okay step two pick the stock that you wanna do this with now it should be a stock that you wanna own a stock that you've done your due diligence on we should not be chasing premiums here right the premium is the little cherry on top of this awesome stock that we are going to place a leaps option on and be able to one day potentially make a lot of money off of now without diving into individual stocks because i'm not a financial advisor and i can't tell you what stocks to buy i prefer stocks that move in a steady upward direction right you can follow my other videos you can hop on my discord you can see exactly what i'm trading the leaps with i update them pretty much as soon as i make those trades but you don't want somebody trades flat because that leaps option we are going to benefit by the share price going up so you want to find a stock that's going to grow steadily now in this particular strategy we don't want a stock that can just moon and shoot up straight because as we're going to see in a second the short call we don't want to put ourselves in risk by the share price shooting up past our strike price on our short call so we want a nice predictable steady growth over time you can look at the last one year chart even though the last one year has been a little crazy and see is it a steady yoyo up a staircase or is it up and down and up and you don't want huge volatile stocks yeah you're gonna make more premium but just gonna be a pain in the ass just trust me on that now this poor man's covered call can be set up in two steps or one step but in this case i'm going to talk about it in just two steps so the next step after you have enabled level three and you've picked the stock you want we are going to make the leaps option first okay so we are going to go into our options chain whatever brokerage you're using and we are going to find a strike price that will work for a leaps option now some general rules of thumb because we're going to be buying options and paying premiums so we have to think about some things as far as what you can afford expiration things like that for this leaps option and for the poor man's covered call this is my general rule of thumb i like to go in the money to a delta something greater than .75 i want to make that deep in the money and yes we are going to pay more premium but once you understand how premiums made the differences between intrinsic and extrinsic value you know that you're really paying for some of the growth or the profit that you're already receiving by going deep in the money so personally me i at .75 or greater the other thing that we're going to look at in this sleeps option is expiration i want to do an expiration that is more than 365 days out why first reason it allows me a lot of time to make calls and collect premium back before this show ends and also too if you profit off of that leaps option and you go more than 365 days and you hold it for more than 365 days now you're in a long-term capital gains situation which is awesome for me the higher priority is expiration so when i'm looking at the stock that i like i go a year out sometimes it's a year and a couple months depending on the dates and liquidity i find that year out then i go down to the delta and i see if i can afford it if i can't i either have to save up some more money in premium or i have to choose a different stock i very rarely will break one of those two rules to make it happen because when i've done so i ended up burning myself better to be a little patient and have things work out the more boxes that you can check inside your strategy the more likely you are to succeed in that strategy the more rules you break the more likely you are of screwing yourself over now step four like i said you could do at the same time that you place your leaps or you can do it a week later it's it's really up to you but the next step is going to be placing your short call your covered call using the leaps as your collateral first the delta on my short calls i like to be below 0.2 the reason i want that delta so low is because we need to protect the leaps we do not want this call to get assigned unlike the wheel strategy when i say i don't fear simon i'll take assignment all day and this i do not under any circumstance want that short call to be assigned and as far as expiration i want to make that less than 45 days out right because we want theta on our side just like the wheel right we want the premium value to go to zero on our short call so once we go further than 45 days out right data kind of stays a little flat it really starts to ramp up as we approach expiration so this expiration is going to be short like i'll even do weeklies if i can i do a lot of these with stocks that only trade monthlies so i'll be a monthly so that's kind of the structure of the debit spread we make a leaps option we're going to pay a bunch of premium because it's deep in the money and far till expiration then we're going to make a really short term short call which isn't going to collect a lot of premium guys it's it's really not compared to what you paid for the leaps but like i said we're going to be doing this every week or every month for the next year and what it's doing is it's lowering the amount of net premium that you paid for this overall option the last rule of thumb with like the short call guys make sure that the difference in your strike times 100 is greater than the premium that you paid for the leaps option so for example if there is a 10 difference in strike you need to make sure that you paid less than a thousand dollars for your leaps option if you do so you really can't lose if your short call gets assigned okay if you paid a thousand dollars in premium and you have a five dollar difference in strike and that gets assigned you lose 500 bucks right out the gate plus whatever you paid so use that as your safety net make sure that the difference in your strikes between your leap strike and your short strike times 100 is greater than the amount of money you paid for your leaps step five is going to be to monitor your option and most of the time you're just going to be monitoring that short call now this short call has different rules that i applied to the wheel as well i love to buy to close right when we sell options we want to collect premium that premium goes into our buying power immediately once we get to a profit that we're happy with we get the hell out we don't let things happen close expiration that can screw us over so when i trade the wheel right i'm going to try and buy to close at about 70 of the original uh premium that i collected in this case because like i said i want to protect that leaps option i'm going to close my short calls at 40 that's just me so if i get 10 in premium for that short call as soon as the value of that option drops to six i'm taking four bucks and i'm getting out of there simple as that you could choose whatever percentage or threshold or risk tolerance that you want but never but rarely ever am i going to let this go all the way to expiration sometimes things don't work out with that short call like i said if it shoots up past that short call there are times that you might have to roll up and out in expiration by say up up in strike price and out at expiration and you might have to buy to close that short call at a loss that's okay once again not something i do in the wheel but in this strategy there are going to be times when the market shoots up and you are going to have to close that short call at a loss don't worry about it it's going to be a minor hiccup over the course of a year and that's fine because like i said with the leaps as elite as the share price goes up generally the leaps is going to become more valuable so that loss that you take closing it is going to be fine because it's a good thing for our buy it's a good thing for our leaps at the share price going up we just got a little screwed on our short call and we need to protect that move it up in strike and out in expiration with the leaps option when am i going to close that that's not going to go to expiration either and under 99 circumstances i am never going to exercise that option as the buyer of an option you should never exercise your option early if you don't know why i have a video on that i'll leave a card for that up here you could check that out or maybe i'll just leave that down as a pinned comment as well never going to exercise the buy so what i'm going to do about 60 days out i'm going to look to sell to close right because we bought to open i'm going to look to sell to close and you cannot sell to close until your short leg is gone so you would buy to close your short leg leaving only your leaps and then you will sell to close like i said before theta starts to ramp that volume down because as the buyer we want the value up and we don't want theta to hurt us just like entering this trade you can close them at the same time or you could just close the short leg and then in a couple days close the leaps it's really up to you and at the end of the day what would be the overall profit of this poor man's covered call it is going to be the value of the long call when you close it so how much do you sell to close how much do you collect did you win minus the premium that you paid right so it's a net on that on that leaps option and then we're going to add in any premium that we collected from the short call that's going to be your profit in this situation side notes before we get out of here there's always one there's going to be something that doesn't even watch this long in the video and they leave in the comment section below i promise when it happens i will pin it oh this is a great strategy until the the stock price tanks everyone's always worried about this stock price or this crash and what's going to happen guy well fact of the matter is if if the stock that you choose can tank i mean any stock could but we know the ones that are less likely to do so if it tanks you lose right we're trading options this is not a high probability of profit situation okay yeah if the stock tanks i'm gonna lose and and you will too you need to know that going in everyone's so fearful okay if you do like i said if you check the boxes in your strategy you're going to limit limit and mitigate all those losses but yeah if the stock price tanks you lose just like with any other option i don't know why it doesn't be such a big deal and the fact of the matter is just like when we buy the dip when our share price tanks when we own stocks we can do the same here if it's a year from now and right now i even was deep in the money it cleared deep in the money and now it's it just it bottomed out it was a stock that i believed in and i probably shouldn't believe in it in you know 365 days from now unless there's terrible news that came out about it i could buy the dip again i can buy another leafs option and ride that back up and let it rebound over the next year just like i would if i own 100 shares of the stock and i had to hold on to that stock and wait for it to rebound it's not like i'm allowed to make one leaps option and that's gonna be the last thing and if the stock goes down it tanks and i lose all my money no if it goes down and you're worried about your leaps option sell to close it and open a lower one and lower your basis it's as simple as that like it's not always about what happens if the stock price tanks yeah i'll lose money but i'll buy another one and i'll buy the dip [Music] next one i hear all the time is what happens if the short call does get assigned maybe it gets assigned early it really depends on your broker okay most of the time this is general your broker is going to exercise your leaps option to cover the assignment of the short call now in some cases depending on your broker especially if assignment happens early that broker might notify you it might allow you to buy 100 shares to cover it it might allow you to put in the money to cover the short call it really depends this is why you must read the disclosures when you enter brokerages and you enter options know all the possible scenarios that are going to happen at the end once again i talk to so many people that are so mad at robin hood and then i send them a screenshot from their terms and conditions and it's clear as day know your exit strategies but if it does get assigned and the broker does automatically exercise where's your profit there your profit there is going to be the difference in strikes times 100 minus the premium paid plus the premium that you collected and last guys keep learning right the reason i had to make this video is because i've learned since i made the last one you'll learn things about implied volatility in greeks as you become better right i'm not a professional i'm far from it but i keep on learning and i get better and i make more money every year pretty much at over a hundred and twenty percent i think the last time i looked over the last year just trading the poor man's covered call and i i really am confident that you can do the same everyone in my discord is saying the same exact thing there is a link for that if you're interested in jumping down talking to a group of 400 like-minded individuals including myself with all my options trades everything i'm doing and yeah i learned so much from my discord it's dope if you like this video guys please give it a thumbs up if you're new to the channel consider subscribing almost at 100k that's going to be a sick party believe that i'll leave some other videos around here that you could check out that were relevant to this video and until i see you on the next one guys stay positive work really really hard always please be kind to other people i hope you have yourself an amazing day and even better tomorrow

Channel: Brad Finn

Views: 20,517

Rating: 4.9456244 out of 5

Keywords: Brad Finn, passive income, how to trade options, trading options for beginners, option trading, options trading for beginners, the poor mans covered call, how to trade the poor mans covered call, how to trade the PMCC, PMCC, how to trade a debit spread, trading debit spreads, bull call spread, diagonal spread, low risk options strategy, options strategy for small porfolio

Id: leKqPSmfV3w

Length: 19min 30sec (1170 seconds)

Published: Mon Aug 02 2021