Amazing video, A friend of mine referred me to a financial adviser sometime ago and we got talking about investment and money. I started investing with $120k and in the first 2 months , my portfolio was reading $274,800. Crazy right!, I decided to reinvest my profit and gets more interesting. For over a year we have been working together making consistent profit just bought my second home 2 weeks ago and care for my family.
Couple of issues with cheap covered call stocks: 1. I wouldn't count on being able to close that "bid-ask spread" with limit orders. I've never had good success with it anyways, since it seems more a function of volatility and market makers (technically selling a call makes you one, but the you're just...one). 2. Transaction costs. Those are going to be a higher percentage of your cash flows with smaller premium takes, and will reduce the 20% - 30% cash flow increase. You'll still win long term with consistency, but I don't think anyone doing this tactic should overlook it in their personal trading strats. 3. This ties in with number 2, the smaller premium takes, along with tighter deltas (20 delta being closer to ATM than with say NVDA), you're going to run the risk of not being able to roll up and out as easily if a position turns against you. The delta is going to accelerate very quickly once you go in the money (20 delta to 50 in 2-3 strikes), so you can more easily find yourself in a position to take a loss to buy back the position. 4. This ties into number 1, but with the 0 bid to xx ask options, it can be also be hard to get a limit order for a greater than zero premium due to liquidity in the option chain itself. I think one of those (I was passively listening and checked in visually on a couple) had low volume, so assuming you can get 5 cents probably won't happen on some of those. 5. Strike Risk. This ties to number 3 and to a small extent, number 4: once a position turns against you, cheaper stocks have a greater risk of being struck, as the option holder may realize his potential profit between trading the option you sold him, and striking for the stock to take the difference between the strike and market price. Liquidity can also influence this. I'm not saying any of those items to discourage anyone, or to insinuate the content is in error (doesn't sound like it to me)--I'm pointing these things out as issues I've actually dealt with (many times the hard way when first encountered) and hope any serious investors looking to trade these items consider these points. If they happen to you, then to make sure you understand it is part of the 'game' and don't get discouraged on your first encounter (unless you determine option trading is not for you of course!).
I'm glad that you did KEY. I have been trading at the money wheel strategy and averaging 8% to 10%. Per month on two week trades. I really like your channel and i've learned a lot from you
M1 is GREAT as long as you do not intend to sell options. I don't think it really fits into their value proposition unfortunately. We will see what happens in the future. THANK YOU for watching and for leaving your $0.02 in the comments! =)
I went a little overboard in choosing my first stock to do covered calls. SCHW. Since it's "mate" is SCHD I felt it was a safe bet that the bank would not go under. It's a weekly and averages .30 over the time I've been selling calls on my 100 shares. So it's riding, I think, at about 32%
Smaller banks are screwed. With the high fed interest rates, there books are deep in the red. They can't pay customers interest near a money market without taking losses and have struggling commercial real-estate on their books. The problems need to flush out before banks are investable, in my opinion. Too much risk with much better coices to invest. The larger banks are in better shape.
thanks Joe, so the 20-ish delta isn't that frequently "called"? How many times do you lose the stock that you were really hoping to keep? Not that often I assume or you wouldn't be doing this...
Its not the topic of the video but as a fellow Schwab user I really wish they would modernize the web page and include real time options data and likelihood of trade similar to Robinhood for example. StreetSmart mobile app is a little better but still could use some modernization
KEY and to a lesser extent HBAN have been pretty effective for me since the bank crash. Monthlies tend to fill at an average of 0.05/week as you suggest. Put another way, this is good for another 2 shares of stock/month in addition to a currently very nice dividend.
Hey Joe. Ron here. I got a serious question. I think you could take your answer and spin it into an Ave Joe Episode. Anyway, the question: I’m getting a huge windfall of cash: over $400k. I’m also retiring and am looking for semi-passive income. In other words, I want to do as little trading as possible. Maybe doing The Wheel on SPY or IWM or buying a boat load of RYLD and JEPI. What do you suggest.
You are assuming that all stocks have a weekly call option. That is not the case every time. Therefore, your 52x is not realistic. You would have to 12x.
Thanks Joe. Lot of great ideas. I notice a lot of banks in your list. The regional banks have been beaten down due to the turmoil n the banking sector and seem like pretty good deals. I'd be a little careful of Key Corp however. They're a smaller regional bank and thus more susceptible to the problems faced by SVB, Signature Bank and First Republic.
out of 5 stocks, only HPQ is worth having a second look, all others are worth avoiding at this tie, This is my personal opinion. Good analytical presentation.
You get less option premium the further you go OUT OF THE MONEY and the likelihood of getting assigned ALSO goes down. THANK YOU for watching and for leaving your $0.02 in the comments! 👍😎
@AverageJoeInvestor what I meant was what happens if I sell a call that is lower than the stock price. Very high premiums but im not sure what happens if I choose one . What are the possible outcome. Nobody talks about it this way
@@kevinulmer9409 Hi, nobody talks about it because it is a lot of risk of loosing your stock at low price. remember the underlying stock price at the end have to be lower than the option strike you choose. So you will likely finish that the option you sold will be exercise, meaning you will have to sell your stock at this low price you choose for the option.
You neglected to consider subtracting $0.65 for each SIRI contract where you were recieving $2.00 of premium. Now you need to reduce your options return by about 1/3. I would not ever consider trading options in "cheap" stocks.
I just rewatched the video to remind myself where I was coming from and he sold the SIRI contract for $0.02 = $2.00 total contract premium, not $200. If you were to consider rolling on Friday, (out and into the next period) then you'd have to subtract $1.30 per trade. EMT says that there is little benefit to trading more often and studies have shown that the most Theta decay is reached between 45 & 15 DTE. Also, if you allow each contract to expire at the end of the week and open a new one on Monday, then you don't get the weekend decay. That's 2 days lost out of 7. Thanks for your comment and keeping my on my toes. Cheers!!! @@ml-bk9rz
The trouble with banks, atm, is how much debt they are carrying in bonds that are under water. Any info on that for these banks? If they get run they won't be able to liquidate those bonds without taking immense loses which is what is crashing the banks in the news.
This is true Carl and a factor in our decision for whether to invest or not. Regional banks will be much more susceptible to this risk than larger banks like USB or BAC. THANK YOU for watching and for leaving your $0.02 in the comments! 👍😎
Too many banks. 4 out of 6? Then SIRI and HPQ? I don't know about diversifying here. Anyway, great explanations of premium plus dividend cashflow annual cashflow yield. But if stock goes down, you can lose money, especially if banks are hit by high interest rates.
I can appreciate where you are coming from. The goals was not to encourage buying all 5 but to give you 5 different ideas. THANK YOU for watching and for leaving your $0.02 in the comments! 👍😎
Have you looked at OZK? I agree that regional banks are more at risk these days - see SVB, etc. Also, high commercial real estate loan exposure adds risk these days. Keep up the good work on the videos…love your channel.
Hello Joe. IT is amazing video as usual. I have a question: could you make a video, what is your strategy in covered Call in case if your actual price is far below the cost basis?
If u are selling covered calls and the price is going down on your option does that mean you are losing $$. Trying to understand ahead of time. Thank you. If it doesn't get sold do you still lose $$?
You keep the premium you collected, so if it expires out of the money, you keep the whole premium and you also keep your 100 shares. If the stock price has dropped, you lose on capital, but by keeping the premium from selling the option, it reduces your actual loss. It's a way to reduce risk of capital loss. You cannot lose money, you can only miss on potential profit since if might be forced to sell the shares at a certain price. For example, you bought the shares at 50$, you sell a covered call at 52$ and the stock price suddenly rises to 60$, you're forced to sell at 52$, missing on that extra 8$ you'd have made from capital growth.
They are great for capturing premium but need to be monitored closely and should only be a very small percentage of any portfolio. That said it is a good feeling when they move in your favor.
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Amazing video, A friend of mine referred me to a financial adviser sometime ago and we got talking about investment and money. I started investing with $120k and in the first 2 months , my portfolio was reading $274,800. Crazy right!, I decided to reinvest my profit and gets more interesting. For over a year we have been working together making consistent profit just bought my second home 2 weeks ago and care for my family.
@rachealhubert74 Alice Marie Coraggio
Lookup with her name on the webpage
Couple of issues with cheap covered call stocks:
1. I wouldn't count on being able to close that "bid-ask spread" with limit orders. I've never had good success with it anyways, since it seems more a function of volatility and market makers (technically selling a call makes you one, but the you're just...one).
2. Transaction costs. Those are going to be a higher percentage of your cash flows with smaller premium takes, and will reduce the 20% - 30% cash flow increase. You'll still win long term with consistency, but I don't think anyone doing this tactic should overlook it in their personal trading strats.
3. This ties in with number 2, the smaller premium takes, along with tighter deltas (20 delta being closer to ATM than with say NVDA), you're going to run the risk of not being able to roll up and out as easily if a position turns against you. The delta is going to accelerate very quickly once you go in the money (20 delta to 50 in 2-3 strikes), so you can more easily find yourself in a position to take a loss to buy back the position.
4. This ties into number 1, but with the 0 bid to xx ask options, it can be also be hard to get a limit order for a greater than zero premium due to liquidity in the option chain itself. I think one of those (I was passively listening and checked in visually on a couple) had low volume, so assuming you can get 5 cents probably won't happen on some of those.
5. Strike Risk. This ties to number 3 and to a small extent, number 4: once a position turns against you, cheaper stocks have a greater risk of being struck, as the option holder may realize his potential profit between trading the option you sold him, and striking for the stock to take the difference between the strike and market price. Liquidity can also influence this.
I'm not saying any of those items to discourage anyone, or to insinuate the content is in error (doesn't sound like it to me)--I'm pointing these things out as issues I've actually dealt with (many times the hard way when first encountered) and hope any serious investors looking to trade these items consider these points. If they happen to you, then to make sure you understand it is part of the 'game' and don't get discouraged on your first encounter (unless you determine option trading is not for you of course!).
Thank you so much for this priceless info, bro ! really appreciate your knowledge and God bless ! .
I was thinking the same....
Thank you for this. It’s always good to see things from a variety of angles
@@frankstudent @ampiciline thank you
Good info you a real one
I'm glad that you did KEY. I have been trading at the money wheel strategy and averaging 8% to 10%. Per month on two week trades. I really like your channel and i've learned a lot from you
SIRI is a good one. The younglings in my family are having a go at it with this one. They have been doing remarkably well.
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I always watch these and it makes me want to switch brokerages. M1 doesn't have options on it, I hope this is something they add in the future.
M1 is GREAT as long as you do not intend to sell options. I don't think it really fits into their value proposition unfortunately. We will see what happens in the future. THANK YOU for watching and for leaving your $0.02 in the comments! =)
Trading weeks are only 50. Most of the stocks you suggest for this strategy are banks. Risky currently.
I went a little overboard in choosing my first stock to do covered calls. SCHW. Since it's "mate" is SCHD I felt it was a safe bet that the bank would not go under. It's a weekly and averages .30 over the time I've been selling calls on my 100 shares. So it's riding, I think, at about 32%
Smaller banks are screwed. With the high fed interest rates, there books are deep in the red. They can't pay customers interest near a money market without taking losses and have struggling commercial real-estate on their books. The problems need to flush out before banks are investable, in my opinion. Too much risk with much better coices to invest. The larger banks are in better shape.
thanks Joe, so the 20-ish delta isn't that frequently "called"? How many times do you lose the stock that you were really hoping to keep? Not that often I assume or you wouldn't be doing this...
Its not the topic of the video but as a fellow Schwab user I really wish they would modernize the web page and include real time options data and likelihood of trade similar to Robinhood for example. StreetSmart mobile app is a little better but still could use some modernization
SPLG. Super low management fees. Index ETF. Downside is fewer expirations than SPY. Under $50/share tho.
KEY and to a lesser extent HBAN have been pretty effective for me since the bank crash. Monthlies tend to fill at an average of 0.05/week as you suggest. Put another way, this is good for another 2 shares of stock/month in addition to a currently very nice dividend.
Hey Joe. Ron here. I got a serious question. I think you could take your answer and spin it into an Ave Joe Episode. Anyway, the question: I’m getting a huge windfall of cash: over $400k. I’m also retiring and am looking for semi-passive income. In other words, I want to do as little trading as possible. Maybe doing The Wheel on SPY or IWM or buying a boat load of RYLD and JEPI. What do you suggest.
You are assuming that all stocks have a weekly call option. That is not the case every time. Therefore, your 52x is not realistic. You would have to 12x.
Thanks Joe. Lot of great ideas. I notice a lot of banks in your list. The regional banks have been beaten down due to the turmoil n the banking sector and seem like pretty good deals. I'd be a little careful of Key Corp however. They're a smaller regional bank and thus more susceptible to the problems faced by SVB, Signature Bank and First Republic.
Maybe HPQ. All these banks would have been terrible CC stocks with their recent plunges. At this point maybe but still wouldn't for little premium.
What about trading costs?
out of 5 stocks, only HPQ is worth having a second look, all others are worth avoiding at this tie, This is my personal opinion. Good analytical presentation.
Amazing once again! I plan to start selling covered calls in my and my wife's Roth IRAs with the lower cost tickers to learn the ropes! Thanks!
What happens if you choose a strike out of the money
You get less option premium the further you go OUT OF THE MONEY and the likelihood of getting assigned ALSO goes down. THANK YOU for watching and for leaving your $0.02 in the comments! 👍😎
@AverageJoeInvestor what I meant was what happens if I sell a call that is lower than the stock price. Very high premiums but im not sure what happens if I choose one . What are the possible outcome. Nobody talks about it this way
@@kevinulmer9409 Hi, nobody talks about it because it is a lot of risk of loosing your stock at low price. remember the underlying stock price at the end have to be lower than the option strike you choose. So you will likely finish that the option you sold will be exercise, meaning you will have to sell your stock at this low price you choose for the option.
Covered calls how to wreck a stock under a year.
You neglected to consider subtracting $0.65 for each SIRI contract where you were recieving $2.00 of premium. Now you need to reduce your options return by about 1/3. I would not ever consider trading options in "cheap" stocks.
I'm pretty sure your its $0.65 per contract which means 100 shares. That makes it a $200 premium?
I just rewatched the video to remind myself where I was coming from and he sold the SIRI contract for $0.02 = $2.00 total contract premium, not $200. If you were to consider rolling on Friday, (out and into the next period) then you'd have to subtract $1.30 per trade. EMT says that there is little benefit to trading more often and studies have shown that the most Theta decay is reached between 45 & 15 DTE. Also, if you allow each contract to expire at the end of the week and open a new one on Monday, then you don't get the weekend decay. That's 2 days lost out of 7. Thanks for your comment and keeping my on my toes. Cheers!!! @@ml-bk9rz
The trouble with banks, atm, is how much debt they are carrying in bonds that are under water. Any info on that for these banks? If they get run they won't be able to liquidate those bonds without taking immense loses which is what is crashing the banks in the news.
This is true Carl and a factor in our decision for whether to invest or not. Regional banks will be much more susceptible to this risk than larger banks like USB or BAC. THANK YOU for watching and for leaving your $0.02 in the comments! 👍😎
Too many banks. 4 out of 6? Then SIRI and HPQ? I don't know about diversifying here. Anyway, great explanations of premium plus dividend cashflow annual cashflow yield. But if stock goes down, you can lose money, especially if banks are hit by high interest rates.
Well, whomever that platform belongs to it is malfunctioning. It will not take the last 4 of my credit card. The bothers me right off the TOP.
Hi Joe, time to refresh this list in your video. It's been 3 months! Make another I'll watch it :)
Joe…
Are you using margin? If so how much and how much does it affect your cash flow?
Hi Miguel! I do not use margin at all. Not worth the risk. THANK YOU for watching and for leaving your $0.02 in the comments! 👍😎
Wouldn’t say people are guaranteed to earn their money back 😅😅
As long as you like the stock it doesn’t matter
You're the best. Great info as usual.
THANK YOU for the feedback Thomas! I appreciate it! THANK YOU for watching and for leaving your $0.02 in the comments! =)
Whats the win rate for the USB returns estimates? You mention 37% and 21% p.a but that's to win every trade you place which is unlikely?
Little to concentrated in banking sector for my comfort zone.
I can appreciate where you are coming from. The goals was not to encourage buying all 5 but to give you 5 different ideas. THANK YOU for watching and for leaving your $0.02 in the comments! 👍😎
Where does Joe execute his option and stock trades? Is it all at one discount broker? Fidelity? Schwab?
What are your thoughts of abvie? It is down beacuse it lost Humira
Have you looked at OZK? I agree that regional banks are more at risk these days - see SVB, etc. Also, high commercial real estate loan exposure adds risk these days. Keep up the good work on the videos…love your channel.
All of these work on the assumption that the stock price is static for 1 year
Thanks for the stock review of lower priced candidates for selling options. It makes it more doable to practice on a smaller positions starting out.
Hello Joe. Why are you choosing 70 options instead of 30 De options?
I joined patreon membership how do I know how large your portfolio is and what stocks you own
Hello Joe. IT is amazing video as usual. I have a question: could you make a video, what is your strategy in covered Call in case if your actual price is far below the cost basis?
If u are selling covered calls and the price is going down on your option does that mean you are losing $$. Trying to understand ahead of time. Thank you. If it doesn't get sold do you still lose $$?
You keep the premium you collected, so if it expires out of the money, you keep the whole premium and you also keep your 100 shares. If the stock price has dropped, you lose on capital, but by keeping the premium from selling the option, it reduces your actual loss. It's a way to reduce risk of capital loss. You cannot lose money, you can only miss on potential profit since if might be forced to sell the shares at a certain price. For example, you bought the shares at 50$, you sell a covered call at 52$ and the stock price suddenly rises to 60$, you're forced to sell at 52$, missing on that extra 8$ you'd have made from capital growth.
I meant to say seven day options. Versus 30 day
BAC is great.
Love the details
Joe Straub
I tried
Ford motor co. F
👍💸
Will you quit bouncing up and down, It's really annoying...
USB
HPQ
BAC
FITB
KEY
SIRI
Too many assumptions
I like the average joe's energy.
Punk
Who me? 🤪 THANK YOU for watching and for leaving your $0.02 in the comments! 👍😎
Hello joe, have you tried tqqq and sqqq for options? Theyre low cost and really high premium.. just very volatile
They are great for capturing premium but need to be monitored closely and should only be a very small percentage of any portfolio. That said it is a good feeling when they move in your favor.