Passive Income Trading Options (Covered Call Strategy)

Everyone wants to make passive income - it's the dream!

Don't YOU want to get paid while you sleep?

In this video, I'll walk you through how to potentially make passive income from the stock market, and more specifically, how to potentially make passive income by using options. 

Let's first talk about what passive income is. 

Passive income is income that can be earned automatically with minimal labor to earn or maintain. It can be a great way to help generate extra cash flow. 

Some people like to invest in real estate by purchasing a house and renting it out. Each month, your tenant will send a check in the mail - known as mailbox money or passive income.

We can also do this in the stock market and you may be able to utilize stocks you already own. 

Let's say you own 100 shares of Apple - a one time purchase.

You can utilize the "rental income" strategy by renting your shares out by selling the covered call against the stock you own. 

A covered call is a financial transaction in which the investor selling call options owns an equivalent amount of the underlying security. 

Breaking this down further, with our example, your 100 shares of Apple stock are worth $100 each. 

You can let someone else purchase it from you for $105 a share. Once this has been established, they will pay some money up front toward the stock for 30 days. 

In 30 days, the stock is now worth $110 - you are still making $5 per stock from the original deal with the purchaser, and they are happy because they are getting the share for $5 less than what the price is currently at. 

We can look more in-depth at the stock by looking at the option chain - this is the actual list showing buyers that are willing to purchase an option against your share at a certain price. 

Looking at the actual numbers, as of 5/26/2022, Apple (AAPL) was trading at $164.58 (I'll round up to $165).

We need to have 100 shares for  this strategy - option chains work in blocks of 100. 100 shares of Apple at $165 will cost you $16,500. 

For this example, we are looking at a 29 day option chain, to keep this similar to a rental property scenario. 

Looking at the option chain, we can see there is an opportunity for a $165 strike price. This means someone will buy it from you for the same exact price you paid. By choosing this option, we can get $6.15 off each share.  

This gives us $615 of "rental income" for 29 days. 

Interested in learning more on how to potentially make your own passive income? Join us at Power Trades University where we break this down to help get you started.