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Path to $1.4 Million - Stocks I'm buying Next
Plus, the Covered Call Portfolio's 16.2% gains and how you can build wealth selling options.
This service is for general informational and educational purposes only and is not intended to constitute legal, tax, accounting or investment advice. These are my opinions and observations only. I am not a financial advisor.
Starting an account with a small amount of money can feel pointless, often hopeless. But maybe that’s because you haven’t been focused on the right strategy.
How can you get to millionaire status when every penny you’ve put into your account amounts to only one or two thousand dollars? Well, I’m here to show you how and I’m doing it with my own money.
You can’t get there by going all in on YOLO trades or by chasing alerts. And paying someone for trade ideas and alerts doesn’t improve your odds either, it actually hurts your chances.
Learning how to trade is the only way and trading can be simple. The trick is, you need to find a strategy or set of strategies that works for you. And that can be costly.
What if I told you there is a way to get engaged with options, learn about them, and get paid while you do it? This isn’t a sales tactic, I’m not selling you anything.
This is 100% real, and I’ll show you how it is done.
If you've been reading the newsletter you know by now, I’m talking about selling covered calls. For small accounts starting to utilize options, selling covered calls is a way to learn about options hands on while collecting premium (cash) for doing so.
Why not get paid while you learn?
This past month my Covered Call Strategy (CCS) Portfolio returned 16.2% and it came with nearly 4% of downside protection.
Remember the uncertainty at the start of the year? I had a 4% cushion (the downside protection) because I sold call options against my positions and collected the 4% in cash on day one. This provided peace of mind, my favorite thing.
If you want a more in depth look at the Covered Call Strategy, check out last week’s newsletter where I walk through an example using Draftkings (DKNG).
I have made solid gains without buying a single option contract for the CCS Portfolio. Instead, I have been selling calls against my shares of DKNG, SOFI, and RKT.
All three were excellent stock picks that have had impressive returns to start the year! More later on what my next stock picks are for the CCS portfolio.
Now my DKNG shares have been called away (the option I sold was exercised, meaning the owner gets to buy my shares at the strike price of the option I sold). This was after the 15.1% gains I enjoyed from the shares plus the premium collected from the option sold.
I get to take that cash and buy my next round(s) of 100 shares to keep building the CCS Portfolio, selling covered calls, and generating more cash!
Every couple of weeks I get to sell more covered calls which continues to build my account with premiums collected on top of the gains by the shares I own.
Why Don’t More People Sell Covered Calls?
The real shame about the covered call strategy is that not enough people take advantage of it. Especially small accounts and traders just starting to learn about trading options, arguably the people who could benefit most.
The big dreams and excitement that comes with massive overnight gains are not able to be realized (if they ever really were) when you sell covered calls. You limit how much your shares can gain, and because of this many people shy away.
What I mean is, when you sell a call against your shares you are promising to sell your shares at the strike price listed and by the expiration date. That is IF the owner of the option decides to exercise it.
The strike price of an option limits how much you can make on the underlying 100 shares of stock.
For example, selling a call option with a $10 strike price means the maximum you can make is $10 per share until the option expires. If the stock price goes higher, say to $12, you still have to sell at $10 per share and miss out on the additional gains.
What people don’t think about is frequency. You will experience periods of flat or steady growth far more often than the hyper growth. The double-digit positive percentage days are few and far between.
This is the key reason why I believe the covered call strategy is the best options trading strategy to start with. You are only “punished” when the market has really big moves and even then, you are making money not losing it.
Buying call options or put options is what most try at first. You are looking for big gains, and fast! It can be exciting, but it can be a real turnoff to trading when enough of these trades go against you.
I am not a fan of watching your account deplete because you are buying options while trying to learn about how to select them, figuring out how to use the greeks, and understanding how to choose the right strike price.
Instead, sell options and collect cash while you learn about trading them. If you want to use that collected cash to buy options…do that! I prefer to reinvest and compound, but if you are really interested in buying options you might want to try paying for those trades with premium collected from selling options.
Stocks I’m Considering Next for the CCS Portfolio
The CCS Portfolio is a small account portfolio that started with just over two thousand dollars. The goal of the portfolio is to utilized the covered call strategy to continue building the account until it reaches our goal of $1.4 million.
I need to find stocks that I believe in, expect to increase in price, and have a share price that is low enough to allow me to buy 100 shares.
NIO fits these criteria.
I like the way the chart sets up here for NIO too. Although it would have been better to buy in at the start of last week, the confirmation of the rejection again at $13.22 is good information.
I also consider overall market conditions and after the big runup over the past couple of weeks, I would not be surprised to see a bit of a cooling off. Selling calls as stocks are peaking near term or just after they reverse, is ideal.
At the time of this writing, buying 100 shares of NIO would cost $1,119. I like considering selling the $12 strike call options expiring 10 FEB 23 and collecting just shy of $20. You could also consider moving out another week and nearly doubling the premium collected at the same strike price.
Let’s assume I am only able to collect $15 for selling the call option with a $12 strike but let’s say I am able to repeat this throughout the month, 3 times total. This would bring in $36 or 3.2% gains just from the options premium collected and in just a few weeks.
If the stock moves up to $12 that would be an additional 7.2% gained over this short period of time. Additionally, the stock can drop 3.2% before the position (sold call included) would experience any losses.
The beauty of selling covered calls. Next up!
A massive move followed by consolidation last week, I like buying shares for the covered call strategy if I can get them near the $11.21 support level.
At this level, at the time of this writing calls could be sold for nice premium with very short durations. The $12.50 strike expiring 10 FEB 23 collects $32 as of Friday’s close. That is a gain of 2.8% in just one week even if the shares stay flat. I’ll take it!
If the shares run to $12.50 that would add 11.5% to the overall gain in just 5 days.
The long upper wicks near the $12.30 price level tells me there is strong selling around this price and makes it a good level to sell calls against.
I already own 100 shares of SOFI and I think we could see an opportunity to add more on a pull back after an insane run last week.
The long wicks on the top of the candles the past couple of days is a sign that the momentum is cooling at current levels. I would like to buy in below $7 per share and I think revisiting $6.55 is likely.
Buying 100 shares of SOFI at the time of this writing would require $746. I like considering selling the $13 strike call option expiring 17 FEB 23.
If the shares run to this price I will collect $20 for the call option premium plus the share gains of $54 ($800-$746) for a total of $74, just shy of 10% in two weeks.
If the shares remain flat, the option premium collected is roughly 2.6% over the two weeks.
Twitter Spaces - Chart Reviews, Trading Strategies
Every weekend I am hosting a Twitter Space, talking with Keynote Speakers about trading strategies, stocks, Bitcoin, and anything related to the stock market and wealth building.
This week we will be reviewing the charts above as well as many, many more. Join us! Whether you just want to listen and learn or even better, if you’d like to contribute to the conversation, I would love to see you there!
Link to this week’s Twitter Space: Chart Reviews and Targets - SPY, XBI, TSLA, NIO
I hope you found this information useful each and every week. I will continue to post ideas on Twitter for stocks I consider to be in ideal spots for buying shares or selling calls. I will also highlight which call options you might consider selling and why.
If you have any questions, be sure to find me on Twitter @tradernatehere and send me a DM!
Also, be sure to follow for daily posts on trade updates and trading strategies as I pursue my goal of educating thousands on the many ways trading options can help build your account.
Have a great week of trading ahead!