****WARNING: Educational, not advice ****

Last week, I talked about options and how I was learning about Covered Calls. Last week was an interesting experiment. I made $94.90 in profit, but if I set aside 30% for taxes it’s only $66.43. That’s like a 4% return I think.

Now, I had messed up with the GEVO call, and it has to wait a month to trigger, but the $10 premium it made is included in that $95 above. Assuming GEVO does break my strike price of $2.00 I’ll make another $23. That’s $33 in 30 days vs say the $22 dividend my $2,000 of QQQI paid me in a dividend in 30 days of holding it. The GEVO cost me $177 to purchase.

That doesn’t mean that Covered Calls are a 100% all in strategy though. My QQQI is hedged off of 100 companies and I don’t have to research or check for premiums or do anything, it’s just pure passive income on my end.

I do think there is a place in my strategy here for this though and that’s why I want to math this out. The profit above was mainly from a stock called RIOT. The problem was I borrowed from my emergency fund to test this. Yes, I know that’s a dumb call. But I’m putting all that money back into the emergency fund. This did force me to turn off my margin because I can’t pull money out of Robinhood while I’m using the margin. That left me with about $900 left of the $1,850 I put into RIOT

This allowed me to buy 100 shares of SNAP at $5.80 a share or $580. Strike price $6, and premium $0.21 a share. That gave me the $21 premium, and if SNAP holds at $6 by close on friday it will be another $20. If this cycle repeated itself every week for the rest of the year, just the premiums, because I’d have to buy back the shares if they sell making that a wash. That would be $735.

I’m going to pick on QQQI because its share value stays pretty flat. It opened in Jan 2024 at $49 and it’s now $54 two years later. This it’s also around the $2,000 mark in holdings, and round numbers are easier to math with. $2,000 (36 shares) of QQQI will give me $0.62 per share per month, or $22.32 a month. Which is $267.84 a year. Really high return rate like 14% dividend yield.

Just today, if I sold my QQQI this morning for $1,940 and added the $580 I already used on Snapchat, I would have 400 shares. It’s like 434 but contracts can only be sold in 100s for covered calls. I would have sold all 4 contracts at $0.21 premiums. That would have given me $84 in cash today regardless of if it sells Friday. It would take 4 weeks of doing that to surpass the dividends QQQI would give me. And remember QQQI won’t see principal growth anyway. $84 a week would bring in $2,940 by end of year.

What’s the catch Miniwing? Well, the share price can drop. You’re $2,320 of 400 shares could be worth $3 a share by the end of the year, but if people keep offering 21 cents in premiums hoping it goes up you’d still be massively ahead. One other caveat, not all stocks or ETFs allow weekly calls, so if this was something you were going to test check before you buy.

The covered call subreddit says that Ford Motor Company is one of the best ones to start with for these, but the initial price point is a little higher. Between $12 and $13 a share right now.

~~Miniwing~~
Investor, Parent, Stoic