Video 1: Selling Covered Call Options

A low-cost, low-risk way to generate $1,500-$3,000 in income every week.

Video # 1 in our new 7-part series, featuring Bryan Perry with Roger Michalski.

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How selling covered calls works, and its built-in downside cushion

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Selling covered call options: A low-cost, low-risk way to generate $1,500 to $3,000 in income every month

ROGER: Hi I’m Roger Michalski. Publisher of Eagle Financial Publications, here in Washington DC. I’m here with Bryan Perry, the editor of the Cash Machine newsletter.

Bryan is an expert on income investing, and today we’re going to talk about a topic on income investing that everybody is a little familiar with but they don’t know a whole lot about. And that’s selling covered calls. So Bryan, tell us a little bit about that.

BRYAN: Well, selling covered calls is the business of selling risk back to the market and we all know how volatile the market can be from time to time. And yet we hear about option trading and maybe how complex it might be, but selling risk is what professionals do and making it easy enough for even the most novice of investors is really a great experience to understand and to put to work.

So what I find it to be the most intriguing is that it’s not very hard, it’s very lucrative, and you get paid right away and those are the three really great components about selling covered calls.

Really if you have any kind of an ordinary stock portfolio you can put this to work tomorrow and be done with it in a very short period of time, once a month and it makes for an enhanced income that is exponential in terms of dividend income, or other types of income that it would be competing with.

ROGER: So if you had a portfolio of about $50,000 dollars, how much income could you get in a month?

BRYAN: Sure, I would say that a well-executed covered call program, Roger, will generate somewhere between 3% and 4 ½ % to 5% per month. Which in dollar terms — that’s roughly between $1,500 and $3,000 a month.

Okay, if we annualize that over the course of a year on a cash income basis alone that approaches around a 40% benchmark of income which is staggering by most people’s estimates. But if you compound on it even you’re getting an upwards of 50%, if in fact you are in what I would consider to be a market that is not going through a ton of upheaval but offers good volatility to it.

So that is the real intrigue behind selling covered calls in a manner that if executed properly, can be extremely lucrative to investors that exploit this method.

ROGER: So you’re going to get $1,500, maybe $3,000 a month… but how much is it going to cost you?

BRYAN: Well, thankfully, we are in a world now of online brokerage firms and also great discounts, so typically it’s going to cost most people between $2 and $10 to run a stock trade of somewhere between 100 and 1,000 shares. And for every call option (that represents 100 shares of stock), it will run somewhere between again, $2, and maybe $10-12 per trade, depending on where you do our business.

It’s a very competitive landscape out there so, let’s say it’s going to cost you maybe 1, 2, 3% tops on the offset to manage this portfolio, and on a year round basis that’s dirt cheap compared to the kind of income you’re generating.

ROGER: So it’s a low-cost way to generate a couple thousands of dollars of income every single month, and there are a lot of other areas of covered call strategies that we will get into in the upcoming videos.

So stay tuned for the whole series — we are going to have a whole bunch of videos for you, and Bryan is going to walk you through different steps of the covered call strategy. So until the next video, this is Roger Michalski, and have a great day.

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