Covered Calls 101: Generating Passive Income While You Hold Stocks

📄 Video Description 📄

🤓 Fundamentals On Selling Covered Calls
Most of you have probably already bought a call option before. When you purchased that option contract, you paid another trader (the seller) PREMIUM to put on that trade. The seller of the option receives that premium from you up front. For most stocks, you can sell options up to 4 times a month, once a week, creating a simple form of passive income. For example, last month I sold just 2 call options on Workhorse for $171 which is more than 10% of my initial investment. For me to sell these covered calls, I needed to own 100 shares of Workhorse, which I bought at $16 for a total investment of $1600. In order for YOU to sell covered calls, you will also need 100 shares of a single stock. Without this, selling call options would come with unlimited risk since a stock price theoretically has no cap on what it could reach, meaning the option you short could gain unlimited value. To protect you from this, when you sell a covered call, you put 100 shares of the underlying stock down as COLLATERAL. Once your option becomes IN THE MONEY, the buyer of the call option could then execute it, forcing you to sell your 100 shares at the strike price you chose. It's unlikely the buyer would actually go through with this since they would lose out on all the extrinsic time value left in the contract. If your covered call option EXPIRES in the money, the buyer has no other choice than to execute the contract, meaning you will have to sell your 100 shares at the strike price you agreed on. On the other hand, if the call option expires OUT THE MONEY, then you will keep your collateral (the 100 shares) and the premium that the buyer paid you. At this point, you can rinse and repeat this strategy, putting your 100 shares up as collateral over and over again, until your luck runs out and you have to sell your shares.

📈 Stocks for Selling Covered Calls
Possibly the best stocks to sell covered calls with would be dividend stocks, this way you will get paid dividends for holding 100 shares of the company on top of the weekly premium you'll be receiving from your covered calls. AT&T is a great example for this, and it's relatively cheap at just $2800 for 100 shares on their stock. For this, you will get around $40 per week in premium and $50 dividend paycheck every quarter. This adds up to $2300 per year! Dividend stocks are safe for covered calls, but they might not offer the best return. A stock like Microsoft gains 70% in value on average, and continuing to sell covered calls over the years on their stock would result in you receiving around 70% more in premium each year as well. $20k is a lot to lock up when buying 100 shares of Microsoft, though, so you might want to look into big banks. Both Bank of America and Wells Fargo stock are under $25 and they pay around $30 a week in premium, around 1% of your investment, which isn't bad but it's not a lot. If you want a high return on selling covered calls, you need to go with riskier stocks such as Tesla, Square, or Workhorse.
⏱ TIMESTAMPS ⏱

Introduction: 0:00
Fundamentals of Covered Call Options: 0:48
Example of Selling a Covered Call (Robinhood App): 4:03
Best Stocks for Covered Calls: 5:41
Discord/Outro: 9:13

🏷 TAGS 🏷

covered call option strategy,covered call options strategy,covered call strategy,covered call options,covered calls,how to sell covered call options,how to sell covered calls,covered calls robinhood,covered call option,how to sell covered call option,covered call options trading,options trading,options trading strategies,covered call,selling covered calls

⚠️ DISCLAIMER ⚠️

I am not a financial advisor. This video is for entertainment and educational purposes only. You (and only you) are responsible for the financial decisions that you make.

[JazminBautista]

Love how you gave a real example of how this works! Awesome video

[melvincooper]

Finally someone who explains it in layman's terms. Great job Greg. Love your videos.

[JeffRAX]

Hey man nice channel. New investor. Learning about options. Your videos are exactly what I've been looking for. Thanks.

[yis]

I've watched twice, very informational! Thank you!

[Simonjose]

Wow! If I buy an option on Bank of America it'll cover the cost of having a Savings account with them! Thanks. 🤔

[billestep]

You gotta choose a high violate stock with a daily high volume. Facebook is an easy one.it only swings 10 to 15 bucks a week max right now. But you can sell a 2 week call option $20 out of the money for about $172 per call. Most people could live on that selling 6 or 7 calls every 2 weeks.

[musicsoul]

hey man, really love your explanation - feel that your channel is underrated! you’ve earned yourself a subscriber in me. also, i’d like to suggest compiling these ‘passive income’ videos into a playlist on your channel so that others can easily find it! keep doing what you’re doing and i’m sure you’ll make it big *here at 43k subs*

[Stockshooter]

Dude hands down you are the best at explaining this shit. I give you max kudos on that because everyone else makes it so complicated that they are awful youtubers. This is gold

[masonev]

A question about 4:43. Why do you need to buy it back at $2400 when you initially already own 100 shares of WKHS at $16? You get to keep the premium $35 and earn $1000 profit by selling 100 shares of $26. You might earn less but the total realized profit would be $1035 instead of paying $2400 to keep the $3400 unrealized profit. I'm a bit confused maybe I don't understand well enough?

[hollyramos]

I have been stuck with ford & Faraday future for so long and finally decided to see what I could do so if I bought in at $17.50 and during this timeframe ford went up to $25 a share I did sell a majority but kept 100 shares then I’d want to sell a call options at $19 strike price? I’m new to options but want to make money on my losing stock, and FFIE I bought at $2.10 so I’d want to buy around $3-4? I just want to make sure I don’t completely make a mistake lose money and my shares

[WassupFred]

Man!! Finally someone who breaks this down in simple terms and in order! You did a great job on this one.. ima watch one more video.. let’s see if u can get me to subscribe!!! Def got the like!! Thanks again man!!! Keep going!!!

[BobHarvey.]

I can’t find any channel or book that explains CLEARLY what in/out of the money means. What money???

[JAMESMJBI]

Answers my question. Aurora cannabis is popping today. It was at 9.81 and I sold a call option at $10 strike price. I thought it would sell once it hit 10, but I guess the buyer is waiting for it to go up some more by the Dec.18 exp. date. I had no idea cannabis stocks would be up so much today.

[danielwayne]

if the share price goes above your strike, why would you have to buy it back? doesn't it just sell? if they bought the 25 call and it hits, don't they just get the stock??

[edmandell]

Great Video. When using the Wheel strategy for selling calls and puts on dividend stocks do you avoid selling puts and Calls on the week of dividend distribution? How do you capture the dividend payout?

[spacejunky]

Great information man. I'll keep this in mind when I start trading

[theunknown]

Will this strategy work: Sell weekly calls and in the scenario it is increasing or coming close to the strike price, I buy the call for the same strike price. In the event it crosses the Strike price and shares gets reassigned or sold, I will use the premium + strike price money + the profit to minimize the loss of potential gains and buy back my 100 shares

[toinygirl]

It all makes sense but if your stock drops quite a bit below your strike price, wouldn’t you be stuck with your stock as it has loss money. Like you couldn’t open up another covered call next week unless it’s above the price you initially paid for that stock right?

[sandrafrances]

What if you choose to sell a covered call but nobody buys it. Then you don't get the premium right?

[Angelof]

Ok, so do you keep any of the profit if the option is in the money. Like for example, bought the shares at $100, strike price at $110, and then stock goes to $111 ?