$250/Week With an Account Under 10k | Poor Man's Covered Calls Strategy in Robinhood

covered calls are legitimately one of the best trading strategies to actually make consistent money but do you really want to be the loser who saves up sixty thousand dollars to buy apple shares so we can make 700 a month in premium that's the same guy who tells you he doesn't need to drink to have fun yeah he's probably better off in the long term but i don't have sixty thousand dollars or social skills poor man's covered calls in old english are all i have but maybe just maybe all i need with a covered call you're buying a hundred shares of stock than selling a call against those 100 shares this means that if you want to make a lot of premium you need to own a huge amount of shares and because i'd always recommend selling covered calls against blue chip stocks it requires a lot of money that you don't have i mean we're talking about robin hood traders here right i'm a robin hood trader too and if you're like me those wendy's paychecks aren't exactly covering 500 amazon shares so instead what i'll do is buy an in-the-money call on the same stock with 3 to 12 months until expiration in general you want to look for a call that has around a 70 delta or a 70 chance of being in the money at expiration this call also functions like roughly 70 shares of stock but what i can do now is sell a call against the call we just bought with 30 to 45 days until expiration and a 30 delta meaning this call has a 30 chance of being in the money at expiration now i'm collecting the same premium i would be if i were holding 100 shares but it cost me a fraction of the price obviously this does come with extra risk however we'll get into that a little bit later let's look at a real example of how a covered call compares to a poor man's covered call in robin hood i like apple it's a great blue chip stock and it seems like stocks are about to go up for the next few months is if they do anything else if i wanted to sell a covered call on apple i'd need to own 100 shares of apple as collateral and as you can see i'm definitely too broke for this instead what i can do is buy this october 15 115 call it has roughly seven months until expiration and it cost me a fraction of what a hundred shares would cost me it also has around a 65 delta meaning it has roughly a 65 chance of being in the money at expiration and it functions like roughly 65 shares of the underlying stock because i now control shares of the underlying stock i can then sell a call against the call i just bought for example this april 9 128 call where i can collect 375 dollars in premium now i'm able to collect the same 375 dollar premium with a fraction of the capital requirements of buying shares our long call also provides us with more leverage than if we were just holding shares which can be a good thing or a very bad thing here are a few incredibly important things to keep in mind when using this strategy obviously you're taking on more risk than if you were to just own shares this risk manifests itself in a few different ways the fact that your option has time until it expires gives it extrinsic value in a practical sense this means that the underlying will have to go up throughout the life of the option in order for you to break even on your long call if we look here on optionprofitcalculator.com we can see that our breakeven share price increases as we get closer to expiration like any option play you not only have to be right in your prediction but you have to be right before a set date and write enough this means more risk it also means that the basis of this strategy should always be buying a call that will increase in value not hunting high premium collecting premium is a way to provide downside protection and lower the cost basis of that long call it's so incredibly important to make sure you buy into a good long call position and not just the one where you can collect the most premium in fact if you're doing this right it should be the opposite here's why i selected apple for this example not only because i think it'll steadily increase over the next few months but also because apple's implied volatility is below its 252 day average that means that we can anticipate apple's iv will most likely increase back up to that average increasing the value of our long call but wait a second doesn't relatively low iv mean the calls we sell will be cheap as well yes but that's okay because the calls we sell only serve as a hedge that protect the bigger part of our position which is the call we buy with every poor man's covered call position make sure you're looking at it through the lens of whether or not you're buying a good cheap call it should be a call you'd want to buy even if you weren't planning to sell calls against it i know i mentioned this in almost every video but looking at implied volatility is so important when making any option play and it's so incredibly simple yet i know ninety percent of the retards on wall street bets don't do it then again when you're buying options with one day until expiration it's not that important when considering any option play look up apple iv rank or tesla iv rank click on market chameleon and briefly look at the stock's relative level of implied volatility as we can see for apple it's trading below its 252 day average iv that means that apple's iv will most likely increase back to its average and our long call will increase in value if we look back at our long apple call we can see that theta decays our option remarkably slow at a rate of just 2 cents per day this is the graph of theta decay over the life of an option you'll notice that the graph isn't linear theta decays your options slowly at first and then more quickly as you get closer to expiration with the most aggressive decay occurring when the option has around a month until expiration this is another great reason to buy calls with months until expiration the further out you buy your calls the cheaper time becomes buying a month out versus a week out is an expensive difference however buying eight months out versus seven months out costs you significantly less per month this is also why we like to sell 30 day till expiration calls to the degenerates on wall street bets theta decays their options the fastest i mentioned earlier that you want to buy your long term call with around a 70 delta this means the call has roughly a 70 chance of being in the money at expiration keep in mind that this is just a general rule and you can adjust your delta to meet your personal risk tolerance a lower delta call is going to be cheaper and more risky a higher delta call is going to be more expensive but less risky that being said buying a call with around a 70 delta is a great idea when you're first testing out this strategy let's talk about profit taking this chart represents the lifespan of your short call the call you sold when you're selling calls time is your enemy more time until expiration means more time for elon musk to tweet that he's linked quantum mechanics with general relativity this is not what you want to hear when you're selling calls and i promise you it will happen that's why it's good to visualize your short option like this if your short call hits 50 profit before this point it's best to close that position take your profit and sell another call if you don't there's more time left on the option relative to how much profit you can make but what happens if i get assigned if the option you sold is in the money at expiration robin hood will immediately cover your short call by exercising your long call keep this in mind if you really want to keep your long call position open if it looks like your short call will be in the money at expiration you may want to close out that short call position to protect your long call and then open a new short call position this is called rolling let's talk about rolling and i'm not talking about the kind of rolling you do at coachella two completely different things the only similarity is that the middleman of the transaction looks like he smokes meth rolling is just closing one short call position and opening another with a different strike price or expiration date you can roll up roll down roll out or roll on molly that last one is kind of the uh nuclear option so to say but it will make you feel better about your position moving against you rolling up is just closing your short call and selling a new short call with a higher strike rolling down is closing your short call and selling a new short call with a lower strike and rolling out is closing your short call and selling a new call that has a later expiration date there's not a specific rule that dictates when you should roll your position but this is the general idea if you think your short call will be in the money at expiration and don't want to run the risk of assignment close your short call position and open a new one at a higher strike this would be an example of rolling up if the stock is dropping and your short call position is nearly hit near max profit you may want to close the position and sell another call closer to a 30 delta this would be an example of rolling down however it's important to note that incurring a loss on the option you sold is not necessarily a bad thing the only time it should happen is if the stock has increased significantly in value meaning the long leg of your option has also increased significantly in value however keep in mind that if the underlying is blowing past your short call strike consistently you're losing out on gains from your long call once again the fastest way to make a lot of money is to hold a long call that increases in value steady upward growth in the underlying is going to mean big upward growth in your long call the short call simply provides a hedge if the stock goes sideways or down if you think amazon's about to unveil a profitable asteroid mining operation you're not going to want to sell a call against your long call but because the majority of the time that's not the case poor man's covered calls are such a good way to make consistent money another great thing about this strategy is that you can also bet that the stock will go down i know i know just stay with me here for a second with covered calls you can only bet that the stock will increase in value because you're actually holding shares however you can sell poor man covered puts as well this is good to know for when you need to inverse a position you read on wall street bets instead of buying a call just buy a negative 70 delta put then sell a negative 30 delta put against that put this is all of course assuming you have any reason to believe a stock would go down which you'd have to be legitimately disabled to believe at this point here are three different poor man's covered call trades i'd make right now at three different account levels uh yeah you're probably just going to want to buy a gun off the black market and go rob a gas station because you're legitimately too broke with a thousand dollars i'd most likely buy this july 16th 8250 amd call amd's trading at relatively low iv and the stock's been declining over the last month you could then sell this april 1st 89 call and collect a nice 240 in premium with the 10 000 account i'd probably buy these august 20th 45 corsair calls i'd say this is a good play at any account level ivs at a relative low and this is actually a position i'm holding right now you can then sell the april 16 45 call i can't imagine a scenario where corsair will continue to sell off like it has been after beating earnings but once again every intuition i have is wrong so you should probably inverse this

Channel: Benjamin

Views: 263,929

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Keywords: poor man's covered call robinhood, poor mans covered call, poor man's covered call assignment, poor man's covered call strategy

Id: xr2DfWmQ4_Y

Length: 10min 46sec (646 seconds)

Published: Mon Mar 01 2021