Obviously there are unlimited ways to make $ 1000 per month. The way I’m talking about involves a new way of “trading” stocks. I’m not a financial advisor and I’m still learning this, which means I don’t have all the answers, but I’m liking what I’m seeing so far.
Imagine if you didn’t actually trade stocks, but just bought. There’s a meme in the cryptocurrency world of “hodl”, which was a misspelling of “hold”, as in – ‘I’m holding my crypto no matter what and never selling!’. So what if we took that approach with stocks (and not boring index funds)? I think there are at least a few ramifications:
- “Trading” just means buying more stocks
- We’d be far more choosy about which stocks we bought since we couldn’t sell
- You’d be completely at the mercy of the market
But what if that didn’t matter? As long as the stock doesn’t go to zero it may still be useful, and if we buy the right stocks – we can expect to hold them for 10, 15, 20, 30 years or longer, as long as the company remains viable.
Since we’re holding these stocks “forever”, we open up options. Not just the ability to buy or sell options but we open up different avenues for making money with our stocks.
For example, in the current year with apps like Robinhood and Webull you can do a few things to earn more money on your stocks, like loaning out your shares for a fee. Or you could go to a traditional bank and use your stocks as collateral for a loan. Many banks will loan you 50% of the value of your stocks, so if you have $20,000 you can get a loan for as much as $10,000. If your stock pays a dividend you can receive a monthly or quarterly return of some money, which can then be reinvested back into the shares themselves.
But I’m not talking about lending shares or getting a loan or buying dividend stocks and collecting passive income – unless you’re already rich those won’t amount to anything meaningful and you’re trying to make $ 1000 per month!
I’m talking about a system of selling options on your existing stocks that can safely and reliably make you 2, 5, or 10% returns on your portfolio each and every month.
You’re probably yelling – “Enough already – how does it work?!”
Instead of buying risky and volatile options like novice traders, you can sell those same options to the people taking major risks! And what’s better yet, in order to guarantee these options, you actually need to own the stock or have cash to cover the cost of the stock – which means unlike normal options traders who buy options and lose everything, you are protected from major risk.
Selling Covered Calls to Make $ 1000 Per Month
There are actually two different ways to use this strategy: Selling “Covered Calls” and selling “Cash-Secured Puts”.
Selling a covered call means you own 100 shares of a stock and are selling someone the right to buy those shares away from you at a specific price at a specific time. So let’s say you own 100 shares of ACME Corp stock, worth $10 each. You can sell someone the right to buy those shares from you for, say, $20 each,1 month from today. If the share price goes up to $21 or more in the next month, that person would probably exercise their right to buy those shares from you. But if the price doesn’t go above $20 they probably won’t exercise their right to buy since they could just buy them cheaper on the market, so the option expires worthless.
The magic here is that in either scenario above, you still get to keep the money you got selling the option, AND if the price of the stock doesn’t go above $20, you still have your shares! Let’s say you charged $20 for that option you sold to buy all your shares at $20. You only had $1000 worth of stock to begin, and you made $20 selling the option. That’s a 2% return (in a month!) It doesn’t sound like much. But do this every month for a year? You’d end up with a 24% return in CASH on your $1000 in stocks, AND you keep the stock!
Making $ 1000 Per Month In Real Life
It sounds too good to be true, but let me give you a real-world example.
Last month, I made $4500 just selling options on 1 of my poitions – 1200 shares of COIN, worth about $250,000-at the time. I sold 12 options contracts for $375 each (that represents a 1.8% return) at the beginning of the month. The price didn’t get above my target and so they expired worthless, and I got to keep the $4500!
But what if the stock had gone above my target price? Let’s say the calls I sold for $375 each were at a price target of $210, and the price at the end of the month was $212. The person who purchased the option would probably exercise + sell, so they would make $2 per share buying my shares + reselling them immediately. I would actually be forced to sell my 1200 shares at $210 each (meaning I technically “lost” $2/ share). With that $252,000 in cash, plus the $4500 I got from selling the option, I’d have a total of $256,500. I could then just re-buy all the shares for $254,400, keeping the $2100 left over as a profit!
So you see even if you are “forced” to sell the stock, you can just re-buy it and keep selling options against it again.
What about Cash-Secured Puts?
Selling puts works the same way, but starting with cash and if it goes “wrong” ending with you buying the stock. You are selling the right for someone to “put” their shares to you. Which is a fancy way of saying they have the right to make you buy them from them at an agreed price. So if you sell a put for 100 shares of a stock worth $10, you would need $1000 in cash to “secure” that put. If the price falls to $9, the seller has the right to make you buy at $10, netting them a $1 per share profit, or $100. But you then get the shares of stock, and can start writing covered call options against them.
So there you have it – taking money and stocks you already own and selling, not buying options, you can earn 2% or more per month without giving up the cash or stocks. If you do this with a portfolio worth not even $50,000, you can easily make $ 1000 per month selling options!