Option Trading Strategy for Consistent Monthly Cash Flow

Tom Gentile

Posted in

By: Tom Gentile
June 16th, 2023

4 mins read

There are many styles of options trading.  You have your day-trading, you have your swing trading, which goes out a bit further to expiration say a few weeks. There is trading an option, but doing so in a much longer manner, almost like using the leverage of an option as a proxy investment where the option trader buys LEAPs (Long-Term Anticipation Securities).

Then there is an option strategy that can be used as a means to potentially earn money on a monthly basis, (though with the creation of weekly options there are those who consider this strategy to be performed on a weekly time frame).

This article will introduce you to this strategy, explain it in its basic form and then provide you with a link to a video I just completed on this reliable option strategy.

It is Writing Covered Calls

Let’s break down the terms in that title of that strategy.

The term ‘Writing’ means ‘Selling’ or ‘To Sell.’

The term ‘Covered’ means ‘To Own’ or ‘You Own.’

The term ‘Calls’ is referring to the type of option one would sell. One would sell a Call Option.

When the terms are put together ‘Writing Covered Calls’ means on is Selling Calls on the Security that they own.

One is basically putting their stock up for sale, (some refer to it as renting out their stock’, but for a limited time, up to and including option expiration day of the option(s) sold one might sell the stock at the strike price of the option sold.

3 Key things to Know about Writing Covered Calls

Before I provide the link to the video I produced on this option strategy there are a few key basic pieces of knowledge it is best to have when venturing into this style of options trading.

  1. To be able to write or sell a call option contract one must own 100 shares of the security.  If one owns 142 shares of a security they can only write 1 call and the other 42 shares are left to be dealt with in other manners.
  1. Typically, one uses American style options, meaning the option can be exercised any time before option expiration of the option not ONLY on expiration day.

What this means is if you own a stock for 48.80 and you write a July $50 Call.  It can be exercised where the/your account is ‘called away’ from the stock or the account ahs to sell the stock at $50.  This is great in the respect one old the stock at a higher price than it was bought, but one ASLO got paid for the sale of the option up front.

The thing one may be upset with after the fact is if the stock ran higher say to $60 and misses out on the extra 10-points gain.

Which leads me to my last point for now.

  1. One may end up with the stocks they don’t really want and end up selling the stock one would rather hang on to.

And because the stock could be called away or sold at the sold strike price one may NOT want to write covered calls on a stock they want to keep.

If a family member bequeathed this stock to you and you know they would be rolling over in their grave if they knew you sold it, it might not be a wise decision to write a covered call on it.

I recently completed a video on Writing Covered Calls and here it is: Expert’s Guide to Trading Covered Calls on Top Stocks – YouTube

You can follow my YouTube channel for more educational videos and or enroll for a 14-dy trial for $14 to my options analysis tools, www.tomsoptiontools.com for more education on the benefits of options trading.

To subscribe to Toms Tools or look at the monthly recurring plans and the components of each use this link: https://tomsoptiontools.com/cgibin/oa3/pay_choose_MM.php

App: Toms Option Tools

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