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Ryan

After graduating with $75,000 in student loan debt, Ryan began a professional career in finance, aggressively saved and invested and became a self-made millennial millionaire in early 2019. He holds a Master's degree in Computational Finance, a Master's degree in Economics, and a Bachelor's degree in Mathematics. His two passions are investing and traveling.

3 thoughts on “Covered Call Strategy For Income: Avoid For These 4 Reasons

  1. For a while I was making money on these and thought it was some brilliant strategy. What you describe is exactly what happened to me and then I was stuck. I wish I would have read this article before giving it a try!

  2. Ryan – superb article on options. Superb. My background is I retired at 58 after holding executive positions in a Fortune 500 firm. I immediate took master’s courses required to sit for the CFP Exam & passed it in 2018. What is your opinion of how I use options below? I’ve been doing this for 6.5 years.

    The covered call / cash covered put approach I employ is to use them as a portfolio rebalancing strategy. Essentially, I see it as getting paid to rebalance. I periodically rebalance the portfolio when it approaches a certain threshold (say 55% – 65% equity + private placements). Since I would rebalance anyway I sell covered calls on a limited portion of the equity portfolio (~20% and on ETF Indexes) at the appropriate time (using differing expirations & strike prices to manage assignment risk) under the assumption that approximately 20% (on a dollar weighted basis) will be called, thereby letting assignments perform the rebalancing for me…all the while collecting a premium to do it. If the calls expire out of the money, then there will have been no need to rebalance anyway and I still collected the premium. Same approach on selling cash-covered puts which I employ if the portfolio falls below 55% Equities / Private Placements.

    Feel free to be honest with you commentary without the need for being overly diplomatic.

    1. Actually I think this is a good idea since you are using options for a purpose. As long as you buy your rebalances on the same day as option expiry so that your cash inlay matches the cash outlay.

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