@bluewmist Its going to get better....everytime I promise...even on the darkest days find a way to push through to the end...you will be proud of yourself once you look back at what you overcame
$NVDA
TODAY IS A DAY TO REVISIT ONE OF MY FAVORITE OPTION STRATEGIES IN THE STOCK MARKET.
Anyone can do this, it is not “too advanced,” and it is one of the ways to benefit from an underlying equity if it stays flat/goes down.
Will be putting a long explanation below so feel free to bookmark & read later but I’ll be going through an actual example that you see in the screenshot below.
Let’s get into it.
To sell a covered call, you need to own 100 shares of a stock.
100 shares = 1 option contract.
You probably hear about people blowing up their accounts on reddit in options all the time. Those are people that are *buying* options, aka they are betting a stock will move up or down (up is a call, down is a put) and if the stock does NOT move in their direction, they lose all their money that they paid for the option contract.
Well, for every buyer…there is a seller.
If someone is buying the right to own 100 shares of a stock (a call option) YOU could be the seller of that contract. Citadell sells calls, Jane Street sells calls, Goldman sells calls…so could you.
I did not think $NVDA would be $185 by Friday, 8/22. So, I took 100 shares of Nvidia and put them “up for sale,” almost as if I was renting out these shares to someone, by selling a covered call. The call is covered with my 100 shares.
Terms of the contract:
- I get premium upfront as the call seller from the call buyer, in this case $2.37 a share or $237 a contract.
- If $NVDA is above $185 by expiry, I am forced to sell my 100 shares at $185. I still keep the $237 in premium.
- If Nvidia is below $185 by expiry, I keep my 100 shares, the contract goes to zero, the call buyer loses their money, I get to write another covered call again on those 100 shares while pocketing the $237 in premium.
When I learned about this strategy 2 years ago…it genuinely changed my life.
One of the worst case scenarios in this situation is I sell $NVDA at $185. Now my $NVDA average is $122.75, so if I did have to sell at $185…I wouldn’t be crying about it.
You can also roll the contract to avoid selling the shares but we will cover that another day.
So if $NVDA was $190 on Friday, yes I miss out on the extra $5/share, but I got paid $2.37, so I’m technically selling at $187.37.
Now, the odds of Nvidia being exactly above the strike price of $185 simply are more in my favor — you become the CASINO and NOT the gambler when you sell options. The call buyer MUST have the stock over $185. I just need it to be below it.
The other worst case scenario is $NVDA tanks to $160, I keep my covered call premium, but my shares down.
However…my average is $122.75. If I didn’t sell the covered call and Nvidia fell 10%, I’d still feel the pain, but with the covered call I get some benefit as the contracts go to zero and I collect premium on the downside.
Now obviously if you are buying $NVDA today at $178 to sell a $180 call for this week, Nvidia could tank and you are actually underwater on the shares.
But if you have a massive position in a name…that you’d be willing to yield premiums from call buyers who are taking a risk on the volatility to the upside but you are simply selling calls to them with the assumption that their expectations are too high…then you can yield a return from your stock even if it’s flat/down.
The math is:
100 shares at $122.75 avg
$12,275 I paid for the shares
Call premium is $237, so $237/$12,275 = 1.9% ROI
I sold the call on 8/14, today is 8/22, the call is up 87%, so if I were to close the call today…
I’d keep $207 (I’d give back $30 to close the contract, aka buy the contract back to close it) which means $207/$12,275 = a 1.7% return in one week.
There are not many businesses where you can use your capital to generate almost 2% in a week…obviously this can’t happen every week and markets are dynamic but I try to get an extra 1.5-2% a month, not per week, based on my option selling…which has been a game changer for me.
MY BANK BALANCE WILL TOUCH $5M
MY BANK BALANCE WILL TOUCH $10M
MY BANK BALANCE WILL TOUCH $15M
MY BANK BALANCE WILL TOUCH $20M
MY BANK BALANCE WILL TOUCH $25M
AFFIRM "YES"
Your rich life is coming. 💫
Your rich life is coming. 💫
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Your rich life is coming. 💫
Your rich life is coming. 💫
Your rich life is coming. 💫
Your rich life is coming. 💫
Affirm "YES"!!!
FVG Tips💡
1) Wait for a FVG to form after a liquidity sweep.
2) Any FVG that forms during a major session is high probability.
3) If you have a large FVG, take the Fibonacci and enter at the midpoint of the FVG for a tighter stop.
4) Take the highest FVG when bearish and the lowest FVG when bullish