Yesterday I touched on Options trading. I did some digging and research, which is still ongoing, and decided to pull the trigger on 2 tests.

The first was GEVO. It was cheap and I got excited about testing how this Covered Call thing works. I could see that someone wanted to pay $0.10 per share right now with the right to buy my 100 shares by May 14th at $2 a share (current price is $1.80). After fees, I got paid $9.96 immediately.

This is apparently the power of these covered calls. The covered part means you already own the stock, which ideally is a stock you trust will maintain or go up in price. Then someone who is betting the price will go up puts a premium offer out there.

Using the picture above, the premium was $0.64 per share right now non-refundable, you get to keep it no matter what. This order has to be executed by end of the week, which means the stock has to hit $18.50 per share or higher and the person that already paid me $64 gets to then buy those shares at $18.50. If the price never reaches $18.50 this week I keep the $64 and get to do this again next week. If it does sell I have to buy 100 more shares of this or something else and do it again.

I’m obviously boiling down a rather complex subject into a pretty basic explanation, but like I mentioned yesterday this is a learning method for me. Now I believe the long term strategy is to eventually have a ‘get out of trouble’ call that is a selling point like 90 days away that would auto sell if the share price started to tank, but this was more of a test. I also believe that volatility is one reason $F or Ford Motor stock is one of the recommended starting points for learning Covered Calls.

The way that this is less gambling, is that you are just putting your shares up for sale at a premium. If they don’t sell then it’s a win-win because you keep the shares and keep the premium, if they do sell, ideally you only picked a premium that was above your buy in price so you’re ahead but maybe not as ahead as if you had just held the stock the whole time.

These types of payments do count as income so it’s wise to set aside 30% for taxes. Now that was also just 1 contract. If, for example I had 200 shares, I could have sold 2 contracts giving me $120 instantly, and remember that’s money you get even if the price never rises to the stake price.

So in theory I just made $74, $51 after taxes and fees and the price might not reach the stake (selling price) anyway. If the sales do execute, the max total profit from sale plus already paid premium between both stocks, GEVO and RIOT, would be $114.82, $80 after setting aside taxes.

That’s profit, if that works consistently and weekly, then this could be used to massively escalate the dividend snowball. The biggest issue I’ve tracked down, is that I’m using my Robinhood Gold $1,000 of free margin on dividend funds, which makes moving money out of Robinhood difficult. To ease this transition I will most likely need to turn off the Margin and work with smaller stocks than RIOT. I’ll keep this project updated as I go.

~~Miniwing~~
Investor, Parent, Stoic