OpEd: Labor Day Guide To Generating Income With Options

Labor Day, a day to honor American workers.   Labor Day began with the idea to celebrate hardworking ‘laborers’ in the hopes of better working conditions and shorter workdays.   But working smarter is better than working harder.   

Time is money.   You put your money in a bank account and the bank pays you interest, say 3-4%.   Why is the bank paying you to park your money?   Also paying their employees to service you?–also paying rent for you to have a place to store your money?   It is because they make 50% or 100% or 1000% profit off your money.  And its not hard for you to do the same.

Selling covered calls and selling cash secured puts are easy tools to generate income.   They are hedges.   To sell a ‘covered call’ you have to own the stock.   To sell a ‘cash secured put’ all you need is collateral.   You don’t need a lot of money to get started.   Profits build fast.   

Volatility drives premiums.   The VIX, – or volatility index moves quickly and market inequities in pricing develop.   Options premiums soar prior to earning release dates.    As an example, as I write in this moment, Thursday 8/28 10am. Sentinel One (S) is selling at $17.32 cents.    We just bought 100 shares and will see how this plays out!  Earnings release end of day- today.      We turned around and sold the covered call for $18 that expires tomorrow 8/29.  (100 shares = 1 option)  The premium is $.65 or $65.    By selling the call I’m selling my right to all profits above $18 by agreeing to collect a $65 premium.   If the stock goes above $18 they take it away from me and they keep the rest of the profit.   My max profit is (sale of 100 shares at $18 minus cost $17.32, or $68 plus the $65 premium) or $133 in one day on a $1732 dollar investment.   An 8% return in the day if the stock is called. 

The worst thing that can happen is I keep the shares and the premium and roll over the trade to the next week.   But, we bought at $17.32, and collected a .65 cent premium.  Our breakeven is  now $16.73.   

Follow the math.  

Sentinel One is moving.   The stock is now at $17.59.   We are buying an additional 100 shares and selling the $18.50 strike price for tomorrow 8/29.   The premium is $.50 cents.   The trade cost us $1759 dollars for 100 shares.   Again we turn around and sell the $18.50 for 8/29 and collect .50 cents, or $50 premium.   If the stock goes past $18.50 they take it away….    This trade offers a max profit of .91 cents each on the 100 shares, or $91, plus the $50 premium, a total of $141 for the $1759 investment for the day.    An 8% return.

Earnings release came after hours Thursday and the stock jumped.   You can trade after hours on Robinhood.   Use this link to join:  http://join.robinhood.com/larryb-a913018

Ok, its the next day Friday 8/29 option expiration day and Sentinel One has moved past both strike prices and closed the day at $18.86.   Our first trade was called at $18.  The purchaser paid .68 cents.   Their interest closed at .86 cents.  They made a profit too.   It’s unbelievable how the market can price and predict future events.  The second trade was also called at $18.50.  We maxed our profits on both these trades.   We put up $3495 w trade fees, and collected $274 less trade fees or about $270 and made just shy of 8% for the day’s work.  

‘Selling the put’  is another income-generating way to play the market.   To ‘sell the put’, you must have the cash in the account but you do not have to own the stock.   For this example let’s look at next weeks option chart for Broadcom.   The stock is at $297.39.  they have an earning release on Thursday, 9/4.   In the chart below you can see the options date and premium for each strike price.  

On the left you can see the strike price and the option premium.   If you owned 100 shares cost $29,750,  and sell 1 option with a strike price of $297.50 auto-collect $10.75.  or $1075  If you went out to a strike price of $300 and sold your right to your shares by this you get paid $951 plus the $261 difference betwen the current price and strike price if exercised..

Now look at the chart on the right, if you sell the put, instead of buying the stock at $297.39 you can sell the $295 put and collect 9.39, or $939 dollars.  The stock would have to fall below $285.61 for you to lose.   To sell the put your agreeing to buy this stock at this specified date for this specified price, – here is the collateral.   And you collect the premium.   Almost 3% for the week on either trade.  

Selling covered calls, or cash secured puts are hedges.   Your collecting weekly revenue on any of the stocks you own, or the collateral you are willing to risk.

Options calls and puts vary in their expiration dates and the type of stocks.   There are daily, weekly, and monthly options,  —- Leaps are long term options..  If you think Paramount- Skydance is going to fly under David Ellison or if you think Warner Bros. Discovery is going to be sold under David Zaslav, – buy a leap.   Warner Bros. is currently selling at 11.64.   It might be expensive to buy 1000 shares, or $11,640 dollars but you can buy 10 leaps.   The January 2027 leaps with a strike price of $12 are selling for $2.71 premium.   For $2710 you can purchase the right to own 1000 shares of Warner Bros Discovery  at $12 at any time between today and the third friday of January 2027.    Lots of leverage and upside.   Leaps trade like shares and you don’t have to hold them till expiration.  

While this is not financial advice and I’m not a financial advisor the above is how the world works.    We live in a world of derivatives.   Through the lens of business and the eye of many business leaders you can see an incredible universe of new developments that will shape the future.    But more than that, do what you love and love what you do.   And learn how to protect and grow your assets without working too hard.

Happy Labor Day.