Small Portfolio Options Strategy That Can Make You Thousands (Poor Man’s Covered Call)

what's up guys welcome back yes the title is true i did make over 250 today in option premiums but i know that really means nothing to you like you don't really care how much money i make you guys are getting paid what you do care about and what is good for you is how much money you can make from what you're about to learn inside this video and i totally understand that but more importantly i think this is going to be an overall lesson that i just had to teach myself about the power of education this is a strategy that i refuse to use even like three months ago i knew about it but i remember inside the discord i got to give a shout out to discord and especially luke and everybody else in there that's taught me about this guys i remember lou coming to me and being like hey brad poor man covered call what's up with that and i'm like it has the word poor man in it i'm not even going close to that he was like brad you're a smart dude man you're a smart dude you know how to sell covered calls you've been doing this you love options premium do some research and i think you'll come back to me and start asking me questions and that's exactly what happened and i just took that ball i started learning asking tons of questions this is what we're talking about in the discord if you want to join that discord i think there's some spots open i like to keep it nice and tight knit and i like to keep it like feeling like family so i don't just blow up my discord there is a link down below you can check it out and see if there's any spots but like this is the type of things guys we are making money every single day so i want to get outside of that today and give it to all of you guys and let you know exactly what i'm doing essentially what i'm doing is i sold covered calls like i always do i've been selling covered calls since may but the people it's hard you have to have a lot of capital to sell covered calls especially with the rules of thumb that we talk about having a stock that you wouldn't mind selling and that you love and things like that it's hard to buy a hundred shares so what we're going to do is we're going to use something else to uh to use as leverage so that we don't need to buy 100 shares we are going to have to pay a little bit of premium we are gonna have to buy an option but with this buy option and this selling covered calls i i really i haven't seen or where things can go terribly bad obviously there's risks involved with everything but after i show you the math guys i'm going to get down into my digital whiteboard for those of you that have been around for a while that you know like i teach physics like that's my job i take a lot of pride in taking confusing things and teaching them really really simply and that is going to be my goal we're going to get down into the digital whiteboard and i'm gonna show you the poor man covered call and i'm gonna show you how literally you could take this and you can go do it tomorrow and start making money and premium tomorrow and when i fail to realize also guys is i don't have a really big portfolio this isn't like a youtuber with oh this hundred thousand dollar two hundred thousand dollar portfolio my portfolio is like seventy five hundred bucks and that's high usually it's between like seven five thousand seven five hundred so this return today was like almost three percent for the day for me so like i said this is really genuinely something that you could do on a smaller-ish portfolio and like i know seven thousand is a lot for some people but i said i started doing this with like five so the 264 dollars i made in premium was based around four covered calls inside four poor man covered calls so essentially i'm just going to show you one and then you can kind of see i'll show you the other ones i made but i want to break down one so like you can go do this and i don't want to keep you here all night going through each and every one they're all like the same philosophies and mindsets i'm going to tell you how i look at the greeks i'm going to tell you how i look at strikes chews strikes things like that so these are all my option plays inside of robin hood and like i said i i'll show you this all later and i'll break down exactly what i did i'll put this in the whiteboard and i'll annotate right on it but if we want to get into that whiteboard right now let's take a look at this option that i made today i'm going to give you all the things that we're going to need to look at in case you've never seen it if you have no idea what a covered call is you should definitely go check out my covered call video first before this it will seem a lot easier i'll link that down in the description the comments go watch that do that for a couple months then get into this like when you get almost like bored of covered calls or you're just looking for something else come back but if you have a general understanding i might be able to maybe like tie up some loose ends you have and show you exactly what's going on first here's the underline that's what people say that's the stock the underlying this is the current share price 25.25 this is the call that i made where this is the strike price and what the strike means is i have no problem selling 100 shares at 35 dollars and collecting 3500 it's above my basis i'm not married to this stock so that's how i choose my that's how i choose my strikes right you can't be married to it it better be above your basis and it better be in a position where you are happy selling the stocks and collecting whatever amount of money this is a contract is 100 shares so with 35 per share i would collect and net 3 500 if this were to be assigned which i don't want to happen we'll get to that more in a second this right here is the current value we also see this market value right here so when i collect a premium right when you sell something you get money back so when you sell a contract when you sell a covered call you collect premium people ask me at the premium all the time guys you get premium immediately it goes right into your buying power it doesn't affect your profit loss graph because they want to wait till everything settles out where this option gets expired what not but you get premium immediately you don't like lose it later you almost can't lose it you either pay it when you buy an option or you collect it when you sell an object an option immediately so for this right here this is one of my four this was the most expensive profit that i got today i collected 118 dollars for writing this covered call that is the premium i collected it's mine it's in my buying power i can go do whatever i want with it and i did this four times to equal 264 total dollars this is another number that i tend to look at often the total return now essentially this has a market value of this so right now buyers are paying this amount for that so if i want to buy to close which you are allowed to do i could buy this option back at 94 dollars and it would net me 23 profit or 19.49 percent now in a poor man covered call guys i'm always going to do this at 50 right there's too much like risk for to do this that the other thing when it gets to 50 i'm gonna take a half of uh 118 and i'm gonna roll and i'm gonna do another one for my standard covered calls when i do own 100 chairs i'll probably do this around 75 but i never hold an option expiration if it's out of the money i'm always going to be looking to buy to close the expiration that i chose was 219 that's actually the next one out from the one that we have coming up this week guys you're going to want to be for the poor man covered call in like 30 to 45 that's when fate is really going to ramp up and i'll talk about the greeks in the next slide when i show that up but you know this wants to be within 30 to 45 days we could say that we sold so we have minus one contracts we don't have any contracts right now and my break even price is 36 dollars and 18 cents what that is is just my strike 35 dollars plus the premium that i collected in premium terms that's where they get 36 18. so the next slide's really going to show the beauty of the covered call guys because if i want to do this traditionally with a covered call i need a hundred shares right that's the collateral for a covered call i would have a hundred shares and to do that i need to do this at two five two five per share so if i were to own one hundred shares of this i would need two thousand five hundred and twenty five dollars that is a lot of coin i do not have that so let's see how i can enter this and how much less than 25 25 you would need to have to put up now before i go next slide think about like would it be half of this like what would be a good amount that you would put up to be able to collect 118 every couple weeks all right now there's a it looks like there's a lot going on here guys this is exactly the screen i just had what i did was i added the leaps that i did now guys what a leaps is it is a call option that is far out it is way out as we can see this one right here is the year 2022 about a year out from now the further you go out though the more premium you're gonna have to pay right because now we are a buyer when you buy an option you need to pay premium so the amount of premium that was debited for my account i needed 970 remember if i wanted 100 shares it's going to cost me 2 525 so essentially i'm getting all of the leverage of having 100 shares at 970 dollars and it's actually not 100 shares this is where delta okay so here's how i choose how in the money i want to go how far away from the share price that's and 25 cents i made a 19 15 call okay it has a break even of 24.70 so essentially i'm already past break even i went deep in the money that gives me a lot of intrinsic value it protects myself against it going down i have plenty of time but essentially for in layman's terms if you don't know what delta is this represents how many shares this trade represents so this is like me owning 85 shares now if i owned 85 shares 85 times 25 25 i would need 2 146 so essentially even if you don't want to say this is like having 100 shares it's really like having 86 shares that still i'm saving so much money by doing so and more into the greeks guys if you don't know what theta is that's essentially the pay to play how much is the value of this option going to decrease over time right now because it's so far out of theta starts to really fall down like theta kind of does this it kind of does this and then about 35 to 40 days it just tumbles down until we get to expiration where it's really worth nothing okay so right now i'm losing less than one dollar per day to hold this option and as you can see i put the greeks up for my covered call guys i'm going to be looking for a delta here that is going to be less than 0.3 and that's just the general rule of thumb you're going to hear a lot of people say that i didn't come up with that it's argued also so these i want this to be greater than .7 so that's how i choose my in the money how far in the money i want and how far out do i want to go definitely going to go at least six months if i can't then it's not that big of a deal all right and then i'm going to sell this covered call with this right here now let's talk worst case scenario okay what happens if tattoo chef moons to 37 and this gets assigned what happens now because i don't own 100 shares right so what exactly is going to happen well here's my scenario because i don't have any margin and i'll talk to you right now i'll talk to you in a minute about margin essentially what's going to happen is if this expires in the money you are going to get a sign on that and you are going to have to sell 100 shares and you are going to receive 3500 but you don't own 100 shares so what the brokerage is automatically going to do is they are going to exercise this option because it's also in the money right it's greater than the strike that you chose they're not going to close it out so when they exercise that option you now have to buy 100 shares at the strike that you chose of 15 so you are now going to get minus 1 500 you're still in the profit of two thousand dollars but you did have to pay to enter this deal minus nine hundred and seventy dollars but you've been selling covered calls so you've been collecting premiums so now let's see what the overall this gets assigned on february 19th this gets assigned what happens to me how much money do i have at the end of the day i have the difference in the strikes right 15 and 35 i have the difference in the strikes minus the premium that i paid to open the buy plus i have all the credits from the covered calls that i sold let's do some quick math 2000 minus 970 plus 118 that is going to be 1 148 okay that's worst case scenario for me right now before 2023 obviously if you guys sell options you know worst case scenario really is that this expires worthless and i lose all of this premium paid that's like the worst but that's definitely the worst right if it gets to january 2021 tattoo chef has bombed down to ten dollars i'm gonna lose 970 but i tell you while that's happening i'm going to be collecting premium and knocking this 970 down like i said remember every time you collect premium that 970 that we first initially paid that is going to get lowered 970 minus 118 i've really paid 8.52 that's my adjusted premium paid and i've also lowered my break even by a dollar and 18 cents as well so by doing this i'm collecting premium i'm lowering the amount of net premium that i paid i'm also lowering the break even for this overall contract and worst case scenario one of these does gets assigned even with my rule of 0.3 delta so at the end of the day guys i put 970 up and at the end of the day i got back all this after everything was credited and debited it's a pretty good deal like i said i did this exact four i did the exact thing four times today i'm gonna show you all them i did i'm not gonna go through all the numbers cause you guys saw what i did so i guess to recap the strategy i'm gonna go far out i'm gonna do this with a stock that i think is gonna go up slowly over time you don't wanna moon right it's also going to make the premiums more expensive because the volatility is going to be crazier so you want it to start creeping up you want to be able to afford to go in the money some people have different amounts of delta the ones that i have heard the ones that i'm comfortable with i'm going to go greater than point seven i'm gonna then sell a call that i feel comfortable with selling that's above my basis at point three that's gonna be the end of the day for me so the last screen guys i'm gonna show you all everything i'm gonna show you what an options chain looks like right there in robinhood if you are getting some value guys let me just stop and say can you please just give this video a thumbs up it really helps with the algorithm option videos do not get pushed out very well by youtube but those thumbs up any comments you can leave me did i make a mistake can you clarify something do you have a question leave it that engagement really helps the video as well that's really the biggest thank you you can ever give me if you got some value is a thumbs up and a comment so right here in robin hood this is what we see generally it's just this box right here's the expiration up here you want to make sure you're either on your buy or sell or your caller put side when you click this box it'll open up to all this if you are on the app you're going to see bid ask you're going to click that it looks like a little hyperlink that will open up all the greeks so right now this is not in the money enough for me to choose this buy option if i was going to buy a call this would not be a good idea for the poor man cover to call as far as i'm concerned we can see with expiration we can see that this thing's losing 17 a day in premium so the pay-to-play really sucks but i just kind of wanted to show you where you start looking for this you would open this up you'd make sure that this was greater than .7 and you'd make sure that this expiration was as far out as you could afford this number right here is the premium you'll multiply that by a hundred so this would be 313 dollars right now to buy this call and then you'd go right back in and you'd click sell and you'd sell a covered call and you do the exact same thing so if we see guys i have one two three four these are the ones that i made today guys vail got me 21 uh ap xt got me ninety dollars we just saw this one got me a hundred eighteen dollars just looking at my spreadsheet this got me 35 so that added up to 264 dollars in premium that i got today this was an older one that i have now guys if we see i have one two three four five sell calls six i have six cell calls and how many buy calls do i have one two three four five and this has two so it's six so every single buy option that i have i'm doing the covered call with and then i had this little put that here that i put way out that was a mistake but i'm just going to wait till this hopefully breaks even and then i'm going to buy to close that one out because i don't want to put with an expiration i have a ton of collateral actually i have 550 that's tied up in collateral till 2023 unless i can sell to close this i might even just eat the 38 to free up to 500 so i can make more money here but guys that's essentially it one last nugget that i will leave you guys with and i know you heard it but maybe they didn't explain it if you don't have a weeble account free money guys sign up put 100 bucks in i'll leave the link down the description below if you don't use the platform put 100 bucks in get the four free stocks take it all out free money it's guaranteed to be at least like 25 bucks in stocks so 25 bucks so click the link put 100 bucks in if you do not have a weeble account that's why everyone's telling you to do it because it's free money we're here to help you guys and until i see you guys in the next one stay positive work really really hard always please be kind to other people hope you have yourself an amazing day and even better tomorrow

Channel: Brad Finn

Views: 561,740

Keywords: Brad Finn, dividend investing, dividends, passive income, the wheel strategy, stocks, selling covered calls, covered calls for passive income, buy LEAPS, LEAPS OPTIONS, good delta for LEAPS, good delta for options, poor mans covered call, how to do a poor mans covered call, poor mans covered call option strategy, premium passive income, options passive income, best stocks for the poor mans covered call

Id: JDcBrrT_Kws

Length: 17min 17sec (1037 seconds)

Published: Thu Jan 14 2021