Thank you for all you share! I’ve been learning a lot. On what day of the week do you place your covered call options? And approximately what is the percentage or percentage range above the current price? – Sunny

Thanks for the questions, Sunny! Typically, every Monday morning I sell weekly covered calls on stocks I own. I’ve actually got a time-block on my calendar to remind me.

In terms of how I determine what strike price to sell, that varies. Typically my strike prices are ~8% higher than the current stock price on Monday.

Ideally my shares don’t get called away, so I try to pick strike prices that I deem unachievable by the end of the week, while also balancing the premium I earn in return, of course. The most important factors impacting my decision include overall market sentiment, any upcoming company-specific events, and taxes.

In order to make those options trades, you have to own at least 100 shares of the stock you are selling the options for, correct? – Ric

You are correct, Ric. The strategy I talked about on Monday is referred to as a covered call strategy, and you need to own at least 100 shares of the underlying company. This is less risk than a “naked” or uncovered call strategy where you do not own shares of the underlying company.

Risk is minimized in a covered call strategy because you’re just selling upside over a certain price that you determine, while getting paid to do so. If the stock price doesn’t meet that certain price by the expiration date (which is every Friday for me), I keep the ~$300 and do it over again next Monday.

My question is that you would have to have 100+ shares to do this, and likely much more if you were going to do it on repeat. Eventually, you will have sold all your shares. You mentioned that you buy back the shares at a lower market cost, but wouldn't that have rendered your gain to a rather insignificant amount? How would that compare to just buying and holding over the long haul? It seems like a lot of work (and risk) for little profit. Am I missing something? – Leslie

Thanks for reaching out, Leslie! I think what you’re missing is the fact that I don’t actually have to sell any shares unless the stock price rises above my strike price by Friday expiration.

For example, this week I sold the $650 strike call options on META. Because META did not end the week above $650, I still own all my META shares plus I made $50 for selling the call option on Monday.

Sure… is $50 super significant? Not exactly… but over the course of a year selling call options on my entire portfolio nets me around $15,000.

Do you ever use this approach for ETF's? – Mark

Thanks for the question, Mark! I do not because I personally do not own ETFs in my trading account. You absolutely can use this covered call strategy on ETFs, however.

I remember your encouragement that it's “better to be in the market than timing the market,” so I have a question on these Option Calls: With a 90-day or so expiration, how close to the expiration can one afford to ride a call to see where it takes them? – Robert

Thanks for being a loyal reader, Robert! To clarify for other readers, I believe your question is different from the selling call option strategy I’m referring to in the questions above. Your question is referring to my overall Mission strategy where I typically buy call options on high-quality companies with 2-3 months to expiration.

Option prices have two components: time value and intrinsic value. The closer to the expiration date, the less time value the option will have. The time value component of option prices will lose value quickly as expiration nears. Determining whether to hold or sell your option as expiration nears depends on factors similar to in the first question above: overall market sentiment, any upcoming company-specific events, and your risk tolerance.

Personally, I prefer to close options positions that haven’t gone my way with a few weeks to expiration.

My dad gave me $100 to invest. $50 for me and $50 for my sis. He's old and I just want to make him happy. Any help? – Michelle

Thanks for the question, Michelle! Welcome to the world of investing. I’ll give you the same advice that I give friends and family who are new to investing: buy shares in a company that you know and love, and then watch the newsflow.

Say you like golf. Maybe you buy Acushnet Holdings Corp. (GOLF), which is the owner of Titleist and FootJoy. Buy one share and read the news about the stock every few days. See what the news is and how the stock price reacts. Watching a stock’s performance and understanding why it moves up or down will teach you more than any textbook.

And who knows? Maybe your $50 will grow into something much bigger over time. Happy investing!