Option Trading Strategy for Consistent Monthly Cash Flow

Tom Gentile

Posted in
Education

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

Toms Option Tools scan the markets for bullish and bearish trade opportunities using our proprietary scans and strategy algorithms. TTR Darknet finds bullish entries based on triple stack channel collisions. Money Calendar identifies seasonal patterns with at least 90% accuracy looking back 10 years. Weekly Cash Clock finds short term opportunities that last a week on average. Microcurrency Trader applies Darknet technology and moving averages to cryptocurrencies. Velocity Trader utilizes volume spike and Velocity indicators on custom stock lists. Quantum Scripts scans the markets for momentum acceleration signals and employs Quantum noise filters. Optimal Trader finds directional pre-earnings opportunities that are optimized for entry date, stock movement, and volatility surge. My Trades tracks the profit/loss of your trades, displays stock charts and risk graphs, creates new trades, and edits existing trades. Morning Report provides top 10 option rankings in 6 categories each day.


Disclaimers

Stock and options trading has large potential rewards, but also large potential risk.

You must be aware of the risks and be willing to accept them in order to invest in the stock and options market. Do not trade with money you cannot afford to lose.

This is neither an offer to buy/sell/ or recommend a particular stock or option.

Hypothetical or simulated performance results have certain inherent limitations. Unlike an actual performance record, simulated results do not represent actual trading. Also, since the trades have not been actually executed, the results may have under or overcompensated for the impact, if any, of certain market factors, such as lack of liquidity. Simulated trading programs in general are also subject to the fact that they are designed with hindsight.

No representation is being made that any account will or is likely to achieve profits or losses similar to those shown.

Disclaimer of Warranties and Liabilities Tom Gentile and TomsTradingRoom, LLC including employees, consultants, and editors (“Publisher”) cannot and do not warrant the completeness or accuracy of the content found in our areas, or its usefulness for any particular purpose.

Tom Gentile and TomsTradingRoom, LLC also make no promises that our content or the service itself will be delivered to you uninterrupted, timely, secure, or error-free. Under no circumstances will Tom Gentile and TomsTradingRoom, LLC be liable for direct, indirect, incidental, or any other type of damages resulting from your use or downloading of any content on our site.

This includes, but is in no way limited to, loss or injury caused in whole or in part by our negligence or by anything beyond our control in creating or delivering any portion of Tom Gentile and TomsTradingRoom, LLC.

You are agreeing that you bear responsibility for your own investment research and investment decisions. You also agree that Tom Gentile and TomsTradingRoom, LLC will not be liable for any I, investment decision made, or action taken by you, or others based upon reliance on news, information, or any other material published by Tom Gentile and TomsTradingRoom, LLC.

Tom Gentile and TomsTradingRoom, LLC relies on various sources of information that we believe to be accurate and reliable. However, we make no claims or representations as to the accuracy, completeness, or truth of any material contained on our site.

Tom Gentile and TomsTradingRoom, LLC are educational portals, providing content for educational and informational purposes only. Neither Tom Gentile nor TomsTradingRoom, LLC are a broker/dealer. Investors need a broker to trade stocks and options and must meet certain requirements. All securities, futures, and investments data and ideas are offered to self-directed investors. All prices in USD unless noted otherwise.

A full disclaimer can be found here:  http://www.tomgentile.com/legal_disclaimers.html.

Sign Up Now for Free Education!