The vast majority of people only know how to buy shares and sell them when the price rises above the purchase price. However, the price in the market has 3 directions.
1. Climbs
2. Floats sideways
3. Drops
It means you only make money 33% of the time. You spend the other 66% waiting while the price goes nowhere or drops. Therefore, you must learn how to make money when one of the other options other than a price increase happens.
The market, in general, has been falling in recent months. So most people have seen their accounts plummet. But today, I’m going to show you how you can make money regardless of the price direction of your investments.
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Using the strategy of catching dividends, I invested in Intel Corporation (INTC).
Intel company had an ex-dividend date of May 5, 22. Two days prior, I invested $4,540. I made a purchase of 100 shares for $45.40.
Once the purchase went through, I quickly sold an option expiring May 6, 22, for a credit of $38.
Since then, Intel’s price has dropped and remained below $45. Typically, people are left waiting for the price to recover, looking at their accounts stagnant for weeks or months.
On May 6, 22, as Intel’s price did not reach $46 or more, the option lost most of its value. So I did what is called a ‘roll.’
I bought that option for $3 and sold the option expiring May 13, 22, for a credit of $54, giving me a net income of $51.
Similarly, the price of Intel did not recover and remained below $45. Repeating the process, on May 13, 22, the option lost all its value again. I bought the option for $1 and sold the one expiring May 20, 22, for $26. For another $25 net credit.
On May 20, 22, the price still did not rise to $45 or more. Unfortunately, I couldn’t watch the market that day, so the option expired and died, losing its value.
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Starting the week of May 23, 22, I sold a new option expiring May 27, 22, for a $5 credit. Likewise, the price of Intel did not recover, so on May 27, 22, I bought the option for $1 and sold a new one expiring on June 3, 22, for $26, for another net credit of $25.
Since I held the shares on the ex-dividend date of May 5, 22, I received a cash payment of $36.50 via dividend on June 1, 22.
Arrived on June 3, 22, the price closed at $43.39, for which the option expired worthless. But, once again, I couldn’t watch the market on this day, so I didn’t do another roll-over.
For 1 whole month, the price of Intel has remained below the purchase price. However, I have generated a total of $184.50 in cash. Subtracting the $5 I have spent on option purchases, I have a net profit of $179.50 or a 4% for the month.
I still hold the 100 stocks on which I will continue to sell options at or above the purchase price.
With Robinhood, you can get cash dividends from well-known and established companies.
As you can see, a person with no knowledge of the market would be holding their shares and would have a loss on paper of $201 and nothing more. That person is possibly frustrated with the market because it hasn’t gone up. But we learn to make money in the market no matter how it goes; we make cash while we wait for the recovery.
I want to teach you these strategies and others for free. So I am working on a YouTube channel in which I will teach you everything I know through videos. The channel will be Investi for Spanish-speaking individuals and InvestCity for English-speaking people. We estimate its opening for the end of summer for Investi and early next year for InvestCity.
Stay tuned, and we will provide you with more information soon.
Now, begin your Road to Wealth!
Leave your comment below. If you liked it, pay it forward. Please share it on social media and help others become successful as well. Your success will be the result of two things: Knowledge and Action.
DISCLAIMER: Please read our disclosure policy here. This post contains affiliate links, and I earn from qualifying purchases at no cost to you. There is a very high degree of risk involved in trading. Past results are not indicative of future returns. Road-to-wealth.com and all individuals affiliated with this site assume no responsibilities for your trading and investment results. The indicators, strategies, columns, articles, and other features are for educational purposes only and should not be construed as investment advice. Information for any trading observations is obtained from sources believed to be reliable. Still, we do not warrant its completeness or accuracy or warrant any results from the use of the information. Your use of the trading observations is entirely at your own risk, and it is your sole responsibility to evaluate the information’s accuracy, completeness, and usefulness. You must assess the risk of any trade with your broker and make your own independent decisions regarding any securities mentioned herein.
La gran mayorÃa de las personas solo saben comprar acciones y venderlas cuando el precio suba por encima del precio de compra. Sin embargo, el precio en el mercado tiene 3 direcciones.
1. Sube
2. Flota de lado
3. Baja
Significa que solo ganas dinero el 33% del tiempo. Gastas el otro 66% esperando mientras el precio no va a ningún lado o baja. Por lo tanto, debes aprender cómo generar dinero cuando ocurre una de las otras opciones que no sea aumento de precio.
Sea parte de la disrupción y obtenga acciones gratis cuando abres una cuenta con Robinhood. ¡Además, disfrute de sus acciones fraccionales y comisión GRATIS!
Usando la estrategia de atrapar dividendos, invertà en Intel Corporation (INTC).
La compañÃa de Intel tenÃa una fecha ex-dividendo del 5 Mayo 22. Dos dÃas antes, yo invertà $4,540. Hice una compra de 100 acciones a un precio de $45.40.
Desde entonces, el precio de Intel ha bajado y se ha mantenido por debajo de $45. Por lo general, las personas se quedan esperando a que el precio se recupere, viendo su cuenta estancada por semanas o meses.
El 6 Mayo 22, como el precio de Intel no alcanzó los $46 o más, la opción perdió la mayor parte de su valor. Asà que hice lo que se llama un ‘roll’.
El 20 Mayo 22, el precio todavÃa no subió a $45 o más. Lamentablemente, no pude observar el mercado ese dÃa, por lo que la opción expiró y murió, perdiendo todo su valor.
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Llegado el 3 Junio 22, el precio cerró a $43.39, por lo que la opción venció sin valor. Pero, una vez más, no pude ver el mercado ese dÃa, asà que no hice otro ‘roll-over’.
Durante 1 mes completo, el precio de Intel se ha mantenido por debajo del precio de compra. Sin embargo, he generado un total en efectivo de $184.50. Restando los $5 que he gastado en compras de opciones, tengo una ganancia neta de $179.50 ó un 4% por el mes.
Disclaimer: Lea nuestra polÃtica de divulgación aquÃ. Esta publicación contiene enlaces de afiliados y yo gano con las compras que califican sin costo alguno para usted. Existe un alto grado de riesgo involucrado en la bolsa de valores. Los resultados pasados no son indicativos de rendimientos futuros. Road-to-wealth.com y todas las personas afiliadas a este sitio no asumen ninguna responsabilidad por sus resultados comerciales e inversiones. Los indicadores, estrategias, columnas, artÃculos y otras caracterÃsticas son solo para fines educativos y no deben interpretarse como consejos de inversión. La información para cualquier observación comercial se obtiene de fuentes que se consideran confiables. Aún asÃ, no garantizamos su integridad o precisión ni garantizamos ningún resultado del uso de la información. El uso que usted haga de las observaciones comerciales es bajo su propio riesgo y es su exclusiva responsabilidad evaluar la precisión, integridad y utilidad de la información. Debe evaluar el riesgo de cualquier operación independientes con respecto a los valores mencionados en este documento. No somos asesores financieros y esta publicación es solo para fines educativos. Invertir conlleva riesgos. Asegúrese de visitar a un profesional que pueda diseñar una mejor estrategia para cumplir con sus objetivos personales y circunstancias actuales.
Entre los comentarios, hubo uno que me llamó la atención y decÃa:
“TodavÃa estoy aprendiendo. Tengo un ‘call’ de $50 en Verizon ($VZ) que vence en Junio del próximo año. ¿Existe una mejor manera de hacer esto que no sea comprar y esperar?”
RespondÃ:
“SÃ. Vende ‘covered calls’ semanales o mensuales. Obtendrás ingresos todos los meses aparte de los dividendos cada tres meses (Verizon paga dividendos trimestrales). Reinvierte las ganancias. Un ‘call’ que expira en un año solo te congela tu dinero.”
Quiero decir que ‘Te felicito’ y ‘Muchas Gracias’.
Te felicito porque no muchos tienen el valor de aceptar que aún no tienen el conocimiento necesario y tienen miedo de pedir ayuda, en especial en público, como es la red de Twitter.
Muchas gracias porque acabo de llegar de vacaciones de la isla de Puerto Rico y no estaba seguro de que escribir. Me permites ayudarte a ti y a otros que se encuentren en una posición similar de aprendizaje.
Sea parte de la disrupción y obtenga acciones gratis cuando abres una cuenta con Robinhood. ¡Además, disfrute de sus acciones fraccionales y comisión GRATIS!
El pequeño inversor
Digamos que tienes 6 años y compras 100 carritos hot-wheels por $2. Sin embargo, desea venderlos en el futuro a un precio más alto. Un ‘covered call’ te da la opción de venderlos a un precio más alto en el futuro a la vez que obtiene ingresos mientras mantienes los carritos en tu posesión.
En una fecha estipulada en el futuro, digamos dentro de un mes, sucederá una de dos cosas.
1. Los carritos valen $2.50 o más. Juanito vuelve a ti para comprar los carritos. Se lleva tus carritos y te paga los $2.50. Usted se queda con los $0.50 que te pagó por el contrato y recibes los $2.50 por carrito en efectivo.
2. Los carritos aún no han aumentado su valor por encima de $2.50. El contrato expira. Como no vale más de $2.50, Juanito no querrá ejercer su contrato ya que puede conseguir los carritos en el mercado por un precio más bajo. Juanito pierde $0.50 que te quedas.
Asà que te quedas con los $0.50 del contrato y mantienes tus carritos en tu posesión. Te permite realizar un nuevo contrato para el próximo mes, generando más ingresos mientras sigues reduciendo el costo de tus carritos.
Desde la comodidad de su hogar, invierta en cualquier lugar de los Estados Unidos con Fundrise.
Es una estrategia de ingresos que ayuda a los inversores a generar ingresos adicionales a los dividendos (si la empresa paga dividendos) y a las ganancias de capital sobre las acciones o ETFs que ya manejas en tu portafolio.
Riesgos de ‘covered calls’
Existen dos tipos de riesgos:
1. El riesgo más considerable en el que incurrimos es que limitamos nuestras ganancias en la apreciación de precio.
1. La venta de ‘covered calls’ nos provee ingresos semanales o mensuales según la compañÃa. Algunas compañÃas como Verizon, venden opciones semanales. Otras, como MPLX LP, venden opciones mes a mes.
Compre acciones enteras o fraccionadas de sus acciones favoritas, ya sea de Tesla (TSLA) o de cualquier otra empresa, sin comisiones con Robinhood.
Posibles resultados
Cuando vendemos ‘covered calls’, existen 2 posibilidades:
1. El precio de la acción sube más que el precio establecido por nuestra venta. En este punto, es muy probable que el comprador ejerza su opción y tome nuestras acciones. Entonces, automáticamente, el equivalente del dinero aparece en nuestra cuenta como efectivo, y desaparecen nuestras acciones.
a. Podemos esperar a que caduque la opción y suba al cielo de las opciones. Ocurre los viernes, ya sea semanal o mensualmente dependiendo de la disponibilidad de las opciones. Luego, cuando el mercado abre el lunes siguiente luego de la expiración, volvemos a vender otro ‘call’ con una nueva fecha de expiración en el futuro.
Cada opción consta de 100 acciones. Por lo tanto, si no tienes al menos 100 acciones en tu cartera, no puedes vender contratos de opciones contra esa posición. La parte que se refiere a ‘covered’ significa que tus 100 acciones son garantÃa para esa posición.
Con Fundrise puedes ser un propietario digital en cualquier lugar de los Estados Unidos, sin complicaciones.
MPLX LP ($MPLX)
1. La fecha ex-dividend para MPLX LP ($MPLX) era el 5 Mayo 22. Si deseamos recibir su dividendo, tenÃamos que comprar las acciones el 4 de Mayo. Eso fue precisamente lo que hice.
2) el precio cerraba por encima de $33 y mis acciones se asignan a la persona que compró mi ‘call’. Me depositaban $3,300 en mi cuenta y mis acciones desaparecÃan.
Al igual que $MPLX, Intel Corporation tenÃa una fecha ex-dividend del 5 de Mayo, pero la diferencia es que $INTC tiene opciones disponibles semanalmente.
Espero que esto pueda ayudarlo a comprender y aprender otras formas de ganar dinero en el mercado. Si desean leer de otras fuentes, haga clic en este enlace de Investopedia.
Disclaimer: Lea nuestra polÃtica de divulgación aquÃ. Esta publicación contiene enlaces de afiliados y yo gano con las compras que califican sin costo alguno para usted. Existe un alto grado de riesgo involucrado en la bolsa de valores. Los resultados pasados no son indicativos de rendimientos futuros. Road-to-wealth.com y todas las personas afiliadas a este sitio no asumen ninguna responsabilidad por sus resultados comerciales e inversiones. Los indicadores, estrategias, columnas, artÃculos y otras caracterÃsticas son solo para fines educativos y no deben interpretarse como consejos de inversión. La información para cualquier observación comercial se obtiene de fuentes que se consideran confiables. Aún asÃ, no garantizamos su integridad o precisión ni garantizamos ningún resultado del uso de la información. El uso que usted haga de las observaciones comerciales es bajo su propio riesgo y es su exclusiva responsabilidad evaluar la precisión, integridad y utilidad de la información. Debe evaluar el riesgo de cualquier operación independientes con respecto a los valores mencionados en este documento. No somos asesores financieros y esta publicación es solo para fines educativos. Invertir conlleva riesgos. Asegúrese de visitar a un profesional que pueda diseñar una mejor estrategia para cumplir con sus objetivos personales y circunstancias actuales.
On the famous Friday the 13th, I was scrolling my Twitter account. I felt like talking to people and answering my opinion on various investment issues and the market in general.
I saw a post (I’m not going to mention names because I didn’t ask for permission) where he mentioned covered calls, one of his primary sources of income through his investment portfolio.
Among the comments, there was one that caught my attention and said:
“I’m still learning. I have a $50 call on Verizon ($VZ) which expires in June of next year. Is there a better way to do this than buy and wait?”
I answered:
“Yes. Sell weekly or monthly covered calls. You’ll get income every month apart from dividends every three months (Verizon pays quarterly dividends). Reinvest profits. A call that expires in a year freezes your money.”
He tells me:
“Could you explain a covered call to me like I’m 6 years old? I understand calls and puts perfectly. I don’t understand anything beyond that. So I did that option really to learn and because it was so cheap. So I thought, why not?
I want to say I congratulate you and Thank you very much.
I congratulate you because not many dare to accept that they still do not have the necessary knowledge and are afraid to ask for help, especially in public, as is the Twitter network.
Thank you very much because I just got back from vacation from the island of Puerto Rico and I wasn’t sure what to write. You allow me to help you and others in a similar learning position.
Let’s do it this way first, I’ll give an example of a child investor, then I’ll cover what a covered call is, its risks and benefits, and I’ll finish with two real-life examples that I’m actively managing.
Key takeaways:
* What is a ‘covered call’?
* Risks of this strategy
* Benefits of this strategy
* Real examples
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The Small Investor
You’re 6 years old, and you buy 100 hot-wheels cars for $2. However, you want to sell them in the future at a higher price. A ‘covered call‘ gives you the option to sell them at a higher price in the future while earning you income while keeping the cars in your possession.
Therefore, you sell the option to Juanito to buy the cars from you for $2.50 if the cars are worth $2.50 or more in the future. Juanito pays you a credit, let’s say $0.50, for having the opportunity to buy those cars.
At a stipulated date in the future, say a month from now, one of two things will happen.
1. Cars are worth $2.50 or more. Juanito returns to you to buy the cars. He takes your cars and pays you the $2.50. You keep the $0.50 he paid you for the contract and receive the $2.50 per car in cash.
You have the cash and credit to go back and make another investment. You generated a profit of $0.50 per car ($2.50 sale price – $2 cost) plus the $0.50 credit.
2. Cars have not yet increased in value above $2.50. The contract expires. Since it is not worth more than $2.50, Juanito will not want to exercise his contract since he can get the cars at a lower price. Juanito loses $0.50 that you keep for yourself.
So you keep the $0.50 contract and keep your cars in your possession. It allows you to make a new contract for the next month, generating more income while you continue to reduce the cost of your cars.
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What is a ‘covered call’?
It is an income strategy that helps investors generate income in addition to dividends (if the company pays dividends) and capital gains on the stocks or ETFs that you already manage in your portfolio.
Risks of ‘covered calls’
There are two types of risks:
1. The most considerable risk we incur is that we limit our profits on price appreciation.
For example, we buy 100 shares at $45 and sell a call at $50. We limit our earnings to $5 per share ($50 – $45) plus the credit we receive. If the stock rises above $50, the person who bought the call will exercise their option to buy $50 from us and sell it at the current market price.
2. The other type of risk is if the share price falls too low from where we buy because the further the price is from our effective cost, the credit we receive also decreases.
Benefits of ‘covered calls’
1. Selling ‘covered calls’ provides weekly or monthly income depending on the company. Some companies, like Verizon, sell weekly options. Others, like MPLX LP, sell options on a month-to-month basis.
2. Regardless of what price does after selling a covered call, the credit we receive is ours to do with as we please.
Buy whole shares or fractional shares of your favorite stocks, whether Tesla (TSLA) or any other company, commission-free with Robinhood.
Possible results
When we sell ‘covered calls,’ there are 2 possibilities:
1. The stock price rises more than the price established by our sale. At this point, the buyer is very likely to exercise his option and take our shares. Then, automatically, the equivalent of the money appears in our account as cash, and our shares disappear.
In this example, we realize capital gains plus any credit we have received. Now we start looking for another investment to repeat the process.
2. The share price remains below the established price by our sale. At this point, the option loses most or all of its value, generating our credit income, and we keep our shares intact so we can repeat the process.
In this example, we have 2 options:
a. We can wait for the option to expire and go up into the options heaven. It happens on Fridays, either weekly or monthly depending on the availability of the options. Then, when the market opens the following Monday after the expiration, we go back to sell another call with a new expiration date in the future.
b. We can do what is called a ‘roll over’ of the position, which means that we buy/close the current position before it expires for a low price between $1 to $5 and sell/open a new position for a credit to a new date in the future.
As an investor, it is up to you to decide which options to execute. It is your portfolio, and you must manage it your way. Both options are feasible.
Real examples:
Before we get into the examples, there are 2 requirements for this to work.
1. You must be authorized to buy and sell options.
2. You must be able to buy at least 100 shares of the company of your interest.
Each option consists of 100 shares. Therefore, if you do not have at least 100 shares in your portfolio, you cannot sell options contracts against that position. The part that refers to ‘covered’ means that your 100 shares are collateral for that position.
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MPLX LP ($MPLX)
1. The ex-dividend date for MPLX LP ($MPLX) was May 5, 22. If we wanted to receive its dividend, we had to buy the shares on May 4. That’s precisely what I did.
On May 4th, I bought 100 shares at $33 for an investment of $3,300. I sold the $33 call expiring May 20, 22, for a $40 credit.
It left me with two options:
1) the price closes below $33, and I keep the $40 credit and the shares to receive the $70 dividend ($0.70 dividend * 100 shares). By keeping the shares, I could continue to sell covered calls in the future.
2) the price closes above $33, and my shares get assigned to the person who bought my call. So I had $3,300 deposited into my account, and my shares disappeared.
The second option was what happened.
For a couple of hours of holding the stock, I received a $40 credit. After that, the shares disappeared, and my $3,300 returned to my account as cash. It left me with $3,340 to repeat the process.
Like $MPLX, Intel Corporation had an ex-dividend date of May 5, but the difference is that $INTC has options available weekly.
So on May 3rd, I bought 100 shares for $45.40 for an investment of $4,540. I sold the call expiring on May 6 at $46 for a $38 credit.
Since the price of $INTC was below $46 on May 6, the option’s value lost the vast majority of its value, falling to $3. Therefore, I decided to roll over that position before the end of the day, buying the position for $3 and selling/opening a new position for $54 credit expiring May 13.
The price of $INTC is down, with the rest of the market hovering around $43.64 at yesterday’s close. Therefore, I did another ‘rollover,’ closing the position for $2 and selling/opening another position expiring on May 20th for a credit of $27.
I currently have a loss in the value of $INTC shares of ($176). However, I have received $114 in credits in two weeks. Here is the breakdown:
Credit: $38
Debit: $3
Credit: $54
Debit: $2
Credit: $27
Adding the credits ($119) and subtracting the debits ($5) gives us $114. Add to this the dividend of $36.50 ($0.365 dividend * 100 shares) that I will receive on June 1 since I held the shares as of May 5, and we have a total of $150.50 ($114 + $36.50).
I will keep doing this process until, in the future, the price of $INTC recovers to $46 or higher. Then, my shares get assigned to someone else, giving me my money back in the form of cash and allowing me to start the process with a new position either at $INTC or another company.
Which Oil Stock Is A Better Buy? Exxon Mobil (XOM) or Enbridge (ENB)
Note: We have several things to keep in mind.
1. If we want to keep our shares, depending on the price recovers, we can sell ‘covered calls’ at higher prices like $48, $50, etc. Not only does this continue to leave us weekly or monthly income through credits, but we also ensure more significant capital gains.
2. If the stock price continues to decline with the market, two things can happen:
a. Credits decrease if we continue to sell covered calls at the same price we started.
b. We are forced to sell covered calls at lower prices than initially started. It decreases the capital gain when shares get assigned to someone else. However, the credits must be higher since we are approaching the current share price.
I hope this can help you understand and learn other ways to make money in the market. If you want to read from other sources, click on this Investopedia link.
Now, begin your Road to Wealth!
Leave your comment below. If you liked it, pay it forward. Please share it on social media and help others become successful as well. Your success will be the result of two things: Knowledge and Action.
DISCLAIMER: Please read our disclosure policy here. This post contains affiliate links, and I earn from qualifying purchases at no cost to you. There is a very high degree of risk involved in trading. Past results are not indicative of future returns. Road-to-wealth.com and all individuals affiliated with this site assume no responsibilities for your trading and investment results. The indicators, strategies, columns, articles, and other features are for educational purposes only and should not be construed as investment advice. Information for any trading observations is obtained from sources believed to be reliable. Still, we do not warrant its completeness or accuracy or warrant any results from the use of the information. Your use of the trading observations is entirely at your own risk, and it is your sole responsibility to evaluate the information’s accuracy, completeness, and usefulness. You must assess the risk of any trade with your broker and make your own independent decisions regarding any securities mentioned herein.