A Wildcard Options Strategy

Here is a one-sentence summary of my strategy: 

I generate cash flow from the shares I already own, or intended to own before even buying them by selling options!

 These shares can belong to individual stocks, index funds or other ETFs.

If you’re new to options trading you might wanna check my beginner’s guide to options post to learn about the basics and some options lingo before continue.

 

 

Why do I prefer selling options over buying them?

I actually posted this on Instagram previously but I’ll mention it here again with a one liner: 

Option sellers have a higher probability of profiting!

There is actually research supporting this mathematically. 

In the simplest terms, if you are an option buyer you gotta be right about the direction, magnitude and the timing of the price action of the underlying. 

But if you are an option seller, you can profit whether the price goes in the direction you want, doesn’t change, and even if it moves against you up to some level. 

I don’t know you, but I personally like profits more than losses so I am on the seller’s side.

How do I position myself to profit from options selling?

My options trading strategy complements my long-term investment portfolio and goals. So, I only sell options on the stocks or ETFs that I would like to own. As my main goal with my investments is to create long-term passive cash flow, I almost always trade dividend stocks or ETFs. This is the fundamental rule of my strategy and everything else builds on top of this rule. 

Whenever I got distracted and ignored this rule in the past, I lost money. I learned my lesson again and again.

Basically, I sell put options (cash secured puts) before buying the shares of the underlyings I’d like to own and generate some cash. Eventually, I get assigned and have to buy the shares of the stocks, but because I generated cash before the assignment, my actual cost basis on the stock becomes much lower. Until I get assigned the cash that is securing the put sits in a high yield savings account or used to buy bonds and generates more cash flow.

After buying those shares, this time I sell call options until I get assigned and keep generating cash. As an added bonus, I receive dividends while I’m holding the stock and generate even more cash.

Essentially, I create a three-way cash flow following this strategy. 

In fact, I received $66.47 dividends and $70.70 from call options premiums while holding 100 shares of SCHD in Q2 2023.

As a result, I doubled my profit from SCHD with options!

There you have it, this is the essence of how I set myself up for success!

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There I share updates into my real options portfolio with more details.

If you have any questions please feel free to leave a comment or message me on Instagram!

 

No content in this website is financial advice, it is for educational and entertainment purposes only. I'm not a financial advisor, I'm just a rando on the internet and I manage my finances according to my own goals and risk appetite. There are significant risks to investing, dividends and options trading. So, you should do your own research before making any money decisions and/or consult an advisor if necessary.