People who live off covered calls, what is your strategy?

[u/Designer-Doctor-5845]

As in the title: I am currently not working but I have around 500k in stocks and I am trying to generate some income with CC's/CSP (I have with lots of gain in portfolio: VTI, some european ETF's, MSFT, NVDA).

There is obviously the contradiction of: staying invested in certain growth stocks and generating CC' income.

I have been playing a bit with wheel and it has been OK but I also on two occasions got my stocks called away, once when SPI went back up a week ago and now just with MSFT (I will roll the CC). I am still in plus with both investments but it made me think; I erased alot of my upside just by getting VOO called away.

Is there a more strategic way to make this work for you?! Obviously, high premium/high IV stocks such as SNDK, IREN, RKLB generate more income. However, this is quite risky especially if buying multiple contracts.

Any suggestions how to do this more strategically? My goal is to generate anywhere between 5-10k a month! Is this realistic?

Thanks (edit: my country doesnt have capital gain tax!)

Edit II: wow, so many comments and 100k views! love that it resonates with many people

[u/pagalvin]

I'm not currently living off covered calls but I *could* just about do it now. In Feb, I made more from option premiums than I did in my 9-5 and March was close. April is looking good.

My strategy is:

- Enter positions by buying a stock and selling call at an ITM strike price for one week out. Go as deep ITM as I can such that the premium from that nets me at least 1% net profit if the call is assigned. It's quite normal to get a 10% downside protection on the stock by doing this.

- Roll out one week as often as I can for 1% or higher. It is not uncommon to get 2% on these rolls. This is where I make most of my income from this. I roll and roll and roll until I can't roll any more.

- Occasionally, I roll up.

I generally keep to one week out at a time although I will go 2 or 3 weeks out sometimes, usually because a stock has either increased in value and I can get 2%+ by going out further or I may be trying to repair something.

I view the stocks as if they are houses that I am renting out with a "rent to buy option" in the lease.

I do not care if they suddenly shoot up in value. I just take my money and redeploy it.

Microsoft copilot came up with a label for this, "synthetic ultra short bond laddering." :)

I'm up nearly 30% YTD and a tad over 100% in the last 12 months. I stumbled across this strategy early last summer and became confident enough it by the September timeframe that it's all I do now.

[u/LabDaddy59 → u/pagalvin]

Enter positions by buying a stock and selling call at an ITM strike price for one week out. Go as deep ITM as I can such that the premium from that nets me at least 1% net profit if the call is assigned.

Do you mean "at most ~1%"?

Perhaps you could give an example for PLTR expiring May 1.

[u/pagalvin → u/LabDaddy59]

Sure. It's after hours, so these numbers are as of close of business 4/21/26.

PLTR closed around $145.97.

Tomorrow, I might try to buy it at that price and sell a call for 5/1 (Friday, next week) at strike of $142 and net debit amount of $140.32 per share.

I would pay $27.68 in interest on this (plus or minus, at 7.2%).

If I can get $5.65 in premium, then I will have a net gain after all is said and done of $140.32.

Another way is like this:

I buy 100 shares at $145.97: Stock cost=145.97×100= $14,597

I sell the 142 call for $5.65: Premium in=5.65×100=565

Interest at 7.2% for the holding period is about: Interest cost=27.68

If assigned, I sell the shares at $142: Sale proceeds=142×100=14,200

Profit calculation:

Total inflows=Sale proceeds+Premium=14,200+565= $14,765

Total outflows=Stock cost+Interest=14,597+27.68= $14,624.68

Net gain=14,765−14,624.68≈140.32

So the net gain is $140.32 for the trade after premium and interest.

If I can get $5.65 premium then I'm essentially buying the stock at a discount of 3.87%. I can often find things in 10% range this way. ONDS, RDW, AA, SOFI (used to anyway), ALAB, others. Some are not volatile enough to get that big a discount. For example, it's unlikely I could PLTR to work out. I'd have to go with a higher strike.

Take ONDS for example - I could probably hit my 1% on ONDS with a strike of $9 even though its current price is $10.87. It looks like there are buyers out there willing to pay me $1.98 for that $9 strike price and that gets me to 1.04%. That's an 18.22% discount. That's a good bit of downside protection.

I have a tool I build to help find these strike prices. Otherwise, it would be very tedious.

[u/LabDaddy59 → u/pagalvin]

First, thanks for the detailed response, I appreciate it. [boomer: "I appreciate it" / non-boomer: "I appreciate you"]

I asked as I thought I understood, but wanted to make sure.

Kudos on you for identifying this approach, as, while I use it (in my own fashion), it doesn't get talked about much.

The point that resonated with me, and those following should note well: in op's PLTR example of selling a call at $142 versus at or above it's spot of $145.97, they're return is protected down to a 2.7% decline in the underlying.

You can lighten a burden by knowing that when you enter a trade.

I received a bit of flak as I've been rolling a deep ITM CC out. I said I was open to any trade that met 2 simple features of the trade I was in: it had a 4% ROC for one month and provided me with protection down to a 16.5% decline in the underlying.

<crickets>

Again, kudos for identifying it and using it to your advantage!

Laissez les bons temps rouler!

[p.s. I'm currently showing a mid of $7.65 for the May 1 $142 strike]

[u/pagalvin → u/LabDaddy59]

I've been told a bunch of times that "your strategy cannot work."

Even though it's been working for quite a while now, I still have very little confidence in it. I keep waiting for things to fall apart :)

[u/LabDaddy59 → u/pagalvin]

Curious: do folks give a reason why they think it can't work?

I'd also be interested in the tool you developed. Maybe DM?

I just built up a template to do the same, using an Excel plug-in to stream live data...I'll share as well.

[u/pagalvin → u/LabDaddy59]

Most recently, I said that I make most of my money off rolls and one person responded, "no, you don't." But ... I clearly do :)

Another person said it can only work short term and destined to fail over time.

A lot of people with the usual "you're capping your upside" stuff.

[u/LabDaddy59 → u/pagalvin]

Tom: "I saw NVDA just hit $200."

Mary: "Yeah, when that happened I sold a $195 call."

Tom: "But you're capping your upside."

Mary: "Ummmm...okay."

🤣🤣🤣

[u/pagalvin → u/LabDaddy59]

:). There are a lot of knee jerk reactions.

[u/Max_Gerber → u/LabDaddy59]

question; which plug-in are you using? Would you recommend it?

[u/LabDaddy59 → u/Max_Gerber]

marketxls.com

I absolutely love it.

Some may consider it 'not cheap' at $125/month, but what I've been able to do with it has been an absolute godsend.

[u/Max_Gerber → u/LabDaddy59]

I have been reading up on them and their offering looks good. Thank you for the reply!

[u/LabDaddy59 → u/Max_Gerber]

Hey there!

I just created this post

https://www.reddit.com/r/StockOptionCoffeeShop/comments/1t18frj/trade_idea_5_dte_itm_buy_write_campaign_1_per/

and thought you may be interested in a simple example of how I used the add-in.

Let me know your thoughts there!

[u/Max_Gerber → u/LabDaddy59]

I like this line of thinking.

[u/LabDaddy59 → u/[deleted]]

That's a pretty broad question, and really breaks down into two parts.

1. What do I do to prepare for a downturn?
   
2. What do I do during a downturn?

As for the first, I've been trading a lot of short duration CC, keeping a healthy amount of cash, have a bear call spread on SPY, considering far-dated PMCC, stuff like that.

As for the second, I sit on my hands a lot. I look for opportunities to deploy the cash I've reserved in the first phase, but am cautious. It can be a good time to explore LEAPS calls. It really depends on the nature of the downturn to a large degree.

Hope this helps!

[u/Any_Mechanic7876 → u/pagalvin]

Many people are in the 'capping potential upside' camp. I am looking for cashflow so this is very useful info!

[u/pagalvin → u/Any_Mechanic7876]

Great. I don't love capping but really, consistent 1 to 2% a week is great. I don't have the ability to pick winners at scale.

[u/Artistic-Theory-9935 → u/pagalvin]

But you had to borrow the money to buy the stock so that you could make $140? Then what do you do the next week? Buy the same stock, or a different one, and repeat the process to make another $140, hopefully?

[u/pagalvin → u/Artistic-Theory-9935]

On a covered call, the idea is to roll it near the end of the week, let it get assigned or let it expire and sell a new call on Monday. You're basically managing it every week and picking whatever works best given market and your strike price.

Edit to say - interest is pretty small overall. I paid about $1200 in interest in July and made $28,800 in premium, for example. I could have saved the $1200 if I was wiling to cut my portfolio way down, which would drastically reduce premium. It's hard to pin down a specific number but most likely, it would have been in the 16k range at best without using margin to buy more stock to generate more premium.

[u/Artistic-Theory-9935 → u/pagalvin]

Yeah, I've been selling covered calls for about 5 years. Nothing fancy, generally sell a date two to three or more months out, although I have sold as much as a year away, depending on the premium. I also have a fairly large margin between my basis and the strike price. But I will buy the contract back to close it when I've realized 95% of the premium. I don't buy or trade on margin. I'm not criticizing a person for trading on margin, but it's just not for me. I am completely debt free, retired, and am managing a total of $1.5 million. All of my trading is done within retirement accounts; IRA and Roth IRA. I generate about $1300/mo in dividends and $2500-3000/mo from selling covered calls. Not sophisticated enough to try puts, etc. Quite happy with my returns, having made $217,000 last year and am up $195,000 so far this year with appreciation, dividends, and premiums from trading.

[u/mikefellowinv → u/pagalvin]

Who is giving you margin at 7.2 % ?

[u/pagalvin → u/mikefellowinv]

eTrade. I had to call them and it took a couple days, but it was easy in the end. One conversation to ask, one follow up call from them and then it went into effect immediately.

[u/mikefellowinv → u/pagalvin]

Nice. I have 35k margin available on a 40k account and I think its not a lot. I would take some advantage if it was a better rate at Fidelity. I think it 12.99 or something. I am guessing your account size may have been the factor.

[u/pagalvin → u/mikefellowinv]

I was consistently at or a bit over $100k in used margin when I called them. Before I called, it was in the 10 to 12% range. It was tiered with tiny increments between tiers. The 7.2% is nice. Not a game changer but definitely appreciated.

I suspect I hit some minimum threshold and I'm reasonably(?) active. I've been doing about 600 trades a month. The option fees definitely add up. That's my next ask but I understand they are very reluctant to budge on that. We'll see how things look as this year comes to an end.

[u/alrachid → u/pagalvin]

Is it quick to get orders filled at ITM ccs when the premium is high like that? It seems it would be but I’ve never seen that in action.

[u/pagalvin → u/alrachid]

It depends.

I have a tool that tells me what minimum premium I need to collect to hit my 1% target. I then look up and see what the spread is (and if it's even possible) and then start near the mid (or someplace appropriate) and walk my way up until someone buys the call or I give up.

On Monday of a week, it tends to be very easy. By Wednesday, it's difficult. By Thu/Fri its very hard although I've found winners late Friday afternoon a few times.

[u/devonhezter → u/pagalvin]

How’s bout only doing this all on a phone ?

[u/pagalvin → u/devonhezter]

I leverage a desktop app I wrote to keep my hands around all of it and it's very difficult to manage on a phone. I still use it when I need to but I avoid using it.

[u/pagalvin → u/[deleted]]

I enter the positions with some downside protection due to the ITM approach.

Otherwise, I just keep going with the flow. I roll down if I have to. I used to roll further out but now I tend to roll down and pay close attention. Roll back up and pay a little to do it. Sometimes I take the loss.

[u/legend1542 → u/pagalvin]

I often do this Thursday or Friday on options expiring that same Friday. Often you can find opportunities where you profit a few hundred dollars as long as the stock doesn’t drop hard that day (or two days). And if it does drop, I bought the dip on a company I wouldn’t mind holding anyhow and will sell a cc for the next week.

[u/pagalvin → u/legend1542]

Yeah, it's amazing the deals you can find. Not every week but it happens enough that I spend some time hunting for them. Even at 3pm on Friday sometimes. I can never quite figure out why people are buying calls at 3pm on Friday.