Happy Saturday!

Earlier this week, I wrote about a simple options strategy I use every Monday morning.

The process takes about 15 minutes, and this past Monday it generated $310 in income.

That article generated a flood of emails.

So today, I'm dedicating the entire Q&A to this strategy.

Let’s dive in.

In your article, you gave the example of META trading at $600 and selling a one week covered call for a strike price of $650. How do you go about determining the strike price? – Rich

Great question, Rich. For me, it's really a balancing act between income and risk.

Generally speaking, the closer the strike price is to the current stock price, the more premium I'll receive.

The tradeoff is that my shares are more likely to get called away.

The further away the strike price is, the less income I receive, but the lower the odds of me having to sell my shares.

Personally, I prefer not to have my shares called away – primarily for tax reasons.

So when I sell covered calls, I'm usually looking for a strike price that I view as unreasonable over the time period I'm selling.

In META's case, I looked at $650 and thought a $50+ move in a single (4-day trading) week was unlikely. And I was happy collecting $40 for the risk.

But as always, if I'm wrong and the shares get called away, it's not the end of the world.

I'll still collect the option premium and lock in a healthy gain on a stock that I’ve owned for years.

Note: Also… be careful selling options around company earnings dates. These volatile announcements can cause big moves in stock prices and force you to sell shares at the strike price.

In your article, I didn't understand how Outcome #3 works. The stock price fell and cost you $2,460, but you didn't have to sell those stocks at a loss. – James

Correct, James. If META fell from $600 to $575, the value of my 100 shares would decline by $2,500 on paper.

However, I would still own all 100 shares and I'd still collect the $40 premium from selling the covered call.

So my net paper loss would be $2,460.

The important thing is that nothing in Outcome #3 forces me to sell the stock.

I'm a long-term holder of META, so I would simply continue owning the shares and likely sell another covered call the following week.

That's one reason I like this strategy.

If the stock goes up, I participate in most of the gains.

If the stock goes nowhere, I keep the premium.

And if the stock falls, the premium helps offset a small portion of the decline.

Can you recommend any books or courses on stock options? Thanks. – Gregg

Paradigm has its own free report that explains options simply.

I’d recommend this versus a dense book or online course.

Do you not look at charts to determine levels for strike prices? If your stocks are down significantly during a week, are you still willing to write calls against them that might execute at prices below where they were a week ago? – Brett

Hey, Brett. I don’t look at charts to determine my strike prices.

If that’s your strategy, I won’t stop you.

As for your second question, I'm in a somewhat unique position compared to many investors because following the market is my full-time job. I spend all day reading news, tracking positions, and watching how stocks react to new information.

So if META drops sharply on a Friday and I don't believe anything has fundamentally changed, I'll often adjust my strike price higher the following Monday.

The key isn't necessarily where the stock is trading today.

It's understanding why it's trading there.

If a stock falls for no meaningful reason and has a good chance of rebounding quickly, selling a covered call with a strike price that's too close to the current share price could increase the odds of having your shares called away.

That's why I focus less on charts and more on the underlying reason a stock is moving in the first place.

If I don’t have 100 shares of stock, can I still sell options? – Lucine

Great question, Lucine. And please read this carefully.

Yes, you can sell options without owning 100 shares.

But I DO NOT recommend it.

The strategy I described in Monday's article is called a covered call because I already own the shares. If the stock rises above my strike price, I simply deliver shares I already own.

Selling options without owning the underlying stock is a completely different animal.

For example, let's say META is trading at $600 and you sell a call option with a $650 strike price.

If META closes above $650 at expiration, you're obligated to deliver 100 shares at $650 each.

The problem?

You don't own the shares.

That means you have to go into the market and buy them first.

If META has risen to $750, $850, or even higher, your losses can become enormous.

In fact, unlike most investing strategies, the potential loss on a naked call is theoretically unlimited because a stock can keep rising indefinitely.

That's why I stick with covered calls.

I already own the shares, I'm comfortable holding them long-term, and the option premium simply generates extra income from positions I planned on owning anyway.

Since you are buying and selling regularly, how does this call option strategy coincide with the Wash Sale rule? – Charlie

Great question, Charlie.

You’re correct. If your shares get called away at a loss and then buy them back a few days later, the IRS may view that as a wash sale because you sold at a loss and repurchased shares within 30 days.

I'm well into the green on the positions I sell covered calls against, so I didn’t think of this wrinkle.

Thanks for pointing it out.

Important Update: The Million Mission website is live!

I’ve gotten plenty of feedback regarding where to find previous alerts. Well, The Million Mission website is finally live and you can check out archived alerts here.

Portfolio Overview

Here’s what I’m currently holding in The Million Mission portfolio:

Fannie Mae (FNMA) – 2,500 shares @ $7.25/share

Uber Technologies (UBER) – 200 shares @ $80/share

Nvidia (NVDA) – 200 shares @ $179/share