Selling Option Contracts For Weekly/Monthly Cash Flow

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Season 2 Episode #39. Not Me, But You! Podcast. 

Options. Making the complex easily understandable. Anyone can learn to do this using their phone. It's like anything else, once you have taken the time to learn it/understand it, then it will seem easy. 

How to sell cash secured puts or covered calls to produce weekly/monthly cash flow. I do this on my phone using Robinhood. You can do this using your regular brokerage account. You will owe taxes on gains at the end of each year. 

Or you can do this inside of a regular IRA. And you can do this inside of a Roth IRA. If you produce cash flow inside of your Roth, then your gains are 100% tax free. The only two conditions required to withdraw money tax free from your Roth are: 1) be age 59 1/2 or older  2) have had the account open for at least 5 years. 

When selling option contracts, you are really selling time. If the stock price goes the opposite direction that you anticipate, then you buy back the position/contract and that closes it out. Or you can roll the position. By rolling the position you extend the contract out in time(forward in time). And you can also change the "strike price" (your future projection that the stock price will be). When you change the strike price when rolling, you can move the price up or down as you roll the contract out (forward) in the future. 

When rolling option contracts, try to get additional "premium" (the money you are paid immediately- the cash flow!). Each time you roll if you get a "credit" then you are making additional profit on that position. 

To sell a cash secured put, you have to have enough money in the account AS IF, you were going to buy 100 shares of the stock. Options are always dealing with a block of 100 shares of stock. 

If you don't buy back (close out your option contract) and if you don't roll the position forward, you can get "assigned" 100 shares of stock. This will happen if the actual stock price is below your strike price at the expiration date. If this happens, you can sell a different type of options contract on the 100 shares, that is called a covered call option. This also will pay you additional premium (cash flow). 

Using this strategy you can eventually get the 100 shares "called away" from you. When this happens you get paid for 100 shares at the strike price you selected, and then you have cash again. And then you can start the process again by selling another cash secured put. This process is the "options wheel." 

Selling one contract which involves 100 shares is known as "one contract." If you have enough cash available, you can sell MULTIPLE contracts at the same time.  Each contract REPRESENTS a block of 100 shares of stock. 

Take some of your profit and buy/hold high yield dividend stocks which will bring you even more cash flow! Rinse and repeat. Take some profit and buy/hold Bitcoin. 

Have courage today, to pick on thing, and work on your dreams. 

I'm not a financial advisor. This podcast is for education/entertainment purposes only. You will need to do your own research and accept responsibility for the results of any money you choose to invest. I love using Schwab.com to buy/sell stocks/ETF's/closed end funds/options. Schwab has a very user friendly app/website and their customer service is excellent. I can easily get to speak to a human being whenever I have questions.