Others read it and have no idea what stock options are.
Since this is a way that I’ve been producing recurring income for many months now, I wanted to share it with you.
Now, before I begin, I need to give a big disclaimer.
I am not a financial advisor. I’m not recommending you trade options. There is always a risk when you invest money in stocks or trade various derivatives.
I’m simply sharing with you a story of a way I’ve been making an extra $1,000-$2,000/mo with minimal time and effort.
Me and Simon share a variety of ways in this newsletter to generate extra income in your spare time. Not everything we share is something everyone should do. We’re just trying to help you see all the various ways to earn income on the side. We trust that through prayer and wise counsel you’ll determine which ways make the most sense to you.
Ok, having said that, I want to share what I’ve been doing.
A few years ago, a friend of mine told me that he was selling “covered calls” (a particular options strategy) for extra income. I was a bit surprised when he told me this because he is very conservative when it comes to investing. And I had always heard that options trading was incredibly risky. People have blown up their entire investing account with risky options trades.
He assured me that he wasn’t using options like most people. He wasn’t gambling in the way most people do trying to bet the direction of a stock in the short-term. He was doing something totally different.
That set me off on a multiple month journey of learning more about what options trading really is, the various ways to do it, if it was possible to do it conservatively, and whether it is a viable way that I might earn some extra income on the side.
I did some self-study and then paid for a coaching program to learn more. I recommend that anyone even thinking about this gets a wise coach/mentor to guide you so that you don’t make major mistakes which could cost you a lot of money. And, I’d say for most people, this is probably not the best way to make extra income on the side. Mainly because there’s a pretty big learning curve to get started.
Here’s a brief summary of what I’m doing & I’ll follow-up with a few more newsletters laying out the details.
I sell monthly cash-secured “put” options on stocks I want to own at prices I’d be happy to buy the stock at.
That’s it.
Warren Buffett has compared this to setting a limit price on a stock you like (the highest you’d pay) and then just waiting for it to fill (whether it took weeks, months or years).
As I’ve shared before, my primary investment strategy is buying broad-based market index funds for my long-term investments and money market funds for the cash that I keep liquid.
I’ve tried to keep single stock purchases to 5% or less of my portfolio. I see it as “play” money which I can take a bit more risk with while a majority of my investments are tried & true index funds.
Here’s an example of how this looks:
There’s a particular AI stock that I wanted to own more of. I just didn’t want to buy it at the current price. I wanted to wait & buy it if the price drops.
At the beginning of October, I sold 2 monthly put options on this stock and collected $1,044.66 in premium. My commitment was that I’d buy 100 shares of this stock per option contract at a certain price if it were to fall to that level. The stock didn’t actually fall to that level, so I kept the $1,044.66 in premium and didn’t end up purchasing any stock.
Then I did the same thing the next month and made similar premium.
Eventually the price will drop and I’ll get to buy the shares, but I get to collect the premium while I wait. The big risk here is that it can drop far below the price you commit to buy it at. That’s fine with me because I like the stock at that price & would hope that it would rebound over time. I ONLY do this on well-known companies that I wouldn’t mind holding long-term. That reduces my risk.
I’ll share more details in the next few newsletters, but this has been a pretty hands off way to make some extra money each month.
