Summary

The author describes earning $2,672.23 in passive income by selling covered call options on Robinhood (HOOD) stock, emphasizing the strategy's simplicity and potential for consistent returns.

Abstract

In a recent transaction, the author made $2,672.23 by selling covered calls on Robinhood stock, illustrating a passive income strategy that involves minimal time investment and is straightforward to learn. This method entails owning at least 100 shares of a security to sell call options, which in this case, yielded immediate cash flow upon the order's fulfillment. The author highlights the importance of owning the underlying security to avoid the risks associated with naked call options. The strategy involves collecting premiums by agreeing to potentially sell the stock at a predetermined price by a specific date, which, if executed correctly, can result in regular income even if the stock price does not reach the strike price. The author suggests that selling covered calls is particularly advantageous when done on stocks that are already profitable and for which the seller has a target selling price.

Opinions

The author believes that selling covered calls is an easy and effective way to generate passive income online.
They express skepticism about the common practice of buying options, noting that the majority of options traders lose money.
The author advocates for selling options instead of buying them, as it provides a steady income stream through premium collection.
They emphasize the importance of owning the underlying security before selling covered calls to mitigate unlimited downside risk.
The author suggests that even if the stock gets called away at the strike price, it can still be profitable if the shares were purchased at a lower price.
They recommend selling covered calls on stocks that one is already profitable with and has a fixed target price for selling.
The author advises selling options with an expiry date between 30–45 days to maximize premium relative to the timeframe, based on personal experience.
They offer a referral link to Interactive Brokers, implying a positive endorsement of the platform for options trading.

How I Made $2,672.23 In Passive Income This Month From Holding Just One Stock

Not Enough People Know About This Easy Passive Income Strategy

Today I made $2,672.23 from holding onto one stock. How you might ask?

Selling Covered Call Options.

I believe that selling covered calls is one of the easiest, if not the easiest way to be making passive income online since it does not require much time investment and is very easy to learn.

You might feel sceptical when hearing options trading and I don’t blame you. It is estimated that 80%–90% of options traders lose money but that is because they buy options.

What I do is sell those options to the buyers and collect the premium, free cash flow for me and I rinse and repeat each month.

How To Sell Covered Call Options

To sell covered call options, you will need to own at least 100 shares of the underlying security since 1 options contract is 100 shares. So to sell call options, you do need to invest upfront capital by having to own at least 100 shares of the security which is something you need to keep in mind.

This is why it is called covered call options since you are covering the contract that you are selling by already owning the necessary shares.

***Important*** Always ensure that you own the underlying security before selling the options contract since if you don’t, it is called naked call options which carries unlimited downside risk in theory.

I’ll show you the example of the trade I made today.

As you can see from the above screenshot, I sold 68 call option contracts of Robinhood (HOOD) with an expiry date of April 26th 2024 and strike price of $23 for $0.40 per share.

68 contracts means 6,800 shares of Robinhood. I am getting paid $0.40 per share of premium so the math would be 6,800 x $0.40= $2,720 minus the commission to the broker of $47.77 for a total of $2,672.23 of cash. This gets paid immediately as soon as my order gets filled!

The strike price of $23 and expiry date of April 26th 2024 means that as long as the share price does not hit $23 or more by April 26th, my 6,800 shares do not get called away to the option buyer.

If it does hit $23 or more, the buyer can exercise their option which would obligate me to sell those shares to the buyer. Since I bought the shares of Robinhood on average for significantly less than $23, even if my shares get called away, I don’t lose any money.

What I could lose is the potential for more upside on my stock. For example, if the value of Robinhood was $30 by the expiry date of April 26th, I would still be obligated to sell my shares for $23 as per the contract.

If the stock price remains below $23 at expiry, I would simply keep the premium I collected and then rinse and repeat every month.

I say every month because generally to get the most premium relative to the options timeframe, it’s best to sell options with an expiry date between 30–45 days from my own experience but make sure to do your own research on this as well!

It is best to sell covered calls on stocks that you are already profitable with and already have a fixed price in mind that you plan on selling the shares for.

I would never just sell shares, I would sell covered calls on those shares to collect premium which is the closest thing to free money that I can think of.

I hope you found this informative and please let me know in the comments if you want me to go into more details or have any questions regarding selling covered call options, I will be more than happy to answer your questions :)

The broker that I use to trade options is Interactive Brokers; you can use my referral link here to earn up to $1000 of IBKR Stock for free by signing up.

Kabilan T

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Disclaimer: Not Financial Advice

The content provided in this article is for informational purposes only and does not constitute financial advice. It is essential to conduct your own research or consult with a qualified financial advisor before making any investment decisions. The author is not responsible for any financial actions taken based on the information presented.