Stock Option Strategy - How To Pay $0 For Stocks

Today's video highlights a stock option strategy you can use to essentially pay $0 for your stock purchases. It uses a covered call option strategy to lower your cost basis of the stock you purchase. Full details in the video. Thanks for watching!

Stocks represent pieces of ownership in a company. When you purchase a stock, or a 'share,' you're essentially buying a tiny slice of that company, making you a partial owner, or 'shareholder.' Think of a giant cake, where every piece of the cake symbolizes a share of the company. As the company performs well, the value of your slice can increase, and if the company loses money, well your shares can go down in value. So that’s pretty simple - you invest in companies by buying shares of that company.

Now, let's talk about options. Options are financial contracts that give you the right, but not the obligation, to buy or sell a stock at a specified price. For this video we will focus on Call Options, - so call options are contracts which gives you the right to buy a stock. The easiest way to think of it is Imagine it as a special voucher that lets you purchase your favorite product at a fixed price, even if the actual price goes up in the future. It's like reserving a price today for a potential purchase later.

But how does this voucher, or call option, work in detail? Well, there are three main terms to understand. First, there's the 'Strike Price,' which is that fixed price you've reserved to potentially buy the stock. Next, the 'Expiration Date' is the deadline for your option; think of it as the expiration date on perishable goods. If you don't use the option by this date, it becomes worthless. Lastly, the 'Premium' is the price you pay for this special voucher. Much like a reservation fee, it's the cost for securing the right to buy at the Strike Price before the Expiry Date.

Ok next step is to understand covered calls - which is the specific trade we will set up for this overall strategy - so let's unpack the "covered call." Now the first thing to understand is that in options, you can either be a buyer of a contract or a seller of a contract - just like any market - you have buyers and sellers. So for covered calls, you are SELLING an option contract. The name “covered” call comes from your trade being “covered” by the stock you own - so in order to sell a call option, you need to already own at least 100 shares of a company for every 1 call you sell - and that’s because 1 option contract controls 100 shares of the underlying company.

In this video we will go over examples on how to put this option strategy to use to pay $0 for your stocks. Enjoy!

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Hi Pandrea! What happened to the mustache? I almost didn't recognize you...😂...but with all seriousness, you are my best option teacher. I use Robinhood and have watched countless videos and couldn't grasp the concept until I found your channel. Thank you so much for sharing your knowledge and advise. I'll dip my toes on selling calls this week. I admit I'm nervous but here we

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[somethingthisway]

Thanks for making everything easy to understand.

I have a single question...

assuming the premium / fees / costs are at least 1cent in your favor...

Can you short sale 100 shares and buy a call that expires soon with a strike below your sale price?

if you have like, spy trading at 500$, can you short it and buy 470 call expiring tomorrow or something, if ....

Price of call + interest on short sale + commission + regulatory fees = 29.99 or less?

[jardito]

Are you available for 1 on 1 consultations? Love your videos and could use some direction in a few areas. Thanks

[Hazel]

Can I close out the contract with a sell covered call before it reaches the strike price and then open another sell covered call with a later expiration date?

[SnapBuilds]

What if the stock tanked? The premium for selling covered call to the same strike price as my cost basis is almost nothing. What is the best strategy on selling covered calls in these scenario?