Investing
Unlock Monthly Passive Income with the Real Option Strategy
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The Simplicity and Efficacy of the Real Option Strategy
Investing isn’t just about buying low and selling high; it’s also about smart strategies that generate consistent returns with minimal risk. Today, I'm going to introduce you to a straightforward yet powerful approach known as the Wheel Option Strategy, which I've used to retire more than ten years ago.
This method revolves around selling options on stocks you are interested in owning and using the premiums collected as a source of passive income.
How Does the Wheel Option Strategy Work?
1. Setting the Scene: Sell Puts to Start
We begin by identifying a stock we might want to own; let's use Harley-Davidson in this case. Imagine it's January 2, 2024, and Harley-Davidson’s price is $36.30 per share.
Instead of buying outright at this price, we sell a put option with a strike price of $36, expiring in about 17 days. When we sell a put, we are essentially saying, "I'm willing to buy this stock at $36 per share if the price drops to that point by expiration."
In return for this commitment, we collect a premium (think of it as a small payment), which in this example is $0.80 per share, summing up to $80 for one option contract (remember, each contract covers 100 shares).
2. Managing the Outcome: Assigned or Not
Fast forward to expiration on January 19; if Harley-Davidson’s share is below $36, we now own 100 shares, bought at $36 each regardless of the lower market price. If the price stays above $36, we simply keep the $80 and repeat the process with another put.
3. Next Steps: Selling Calls
Assuming we now own the stock, we proceed to sell a call option. Let's say the next month, we choose a strike price, again at $36. By selling a call, we promise to sell our shares at this price, should the stock rise to or above $36 at the call’s expiration. Again, we collect a premium for this promise, adding to our income.
4. Rinse and Repeat
This cycle of selling puts and calls can be repeated indefinitely. Each round involves collecting premiums that serve as our passive income. If done rightly, these premiums can accumulate into a meaningful yearly return on our invested capital, all while we maintain the possibility of owning the underlying stock.
Click to watch this video to learn more about the Wheel Option Strategy!
Why It Works
What makes the Wheel Option Strategy especially attractive is its predictability and relative safety. Stocks could fluctuate, but as long as you choose stocks you are comfortable owning and set your strike prices wisely, the shocks are manageable.
Plus, collecting premiums consistently helps counteract any potential losses when the stock price moves unfavorably.
If you find this strategy somewhat monotone, that's a positive sign. Successful investing often requires patience and consistency over flashy tactics. 'Boring' strategies like these minimize risks and capitalize on the power of compounding interests subtly building wealth over time.
By embracing a systematic approach like the Wheel Option Strategy, not only can you generate consistent passive income, but you also pave the way for financial freedom and an early retirement. Remember, in the world of investing, sometimes the simplest strategies are the most effective.
Jumpstart Your Options Trading Journey
Intrigued by the potential of the Wheel Option Strategy? It’s just a glimpse of what disciplined trading can achieve. To dive deeper and master options trading, I invite you to join our free Next Level Options Masterclass.
[Next Level Options Masterclass]
This masterclass is tailor-made to equip you with advanced strategies, helping you navigate even the most manipulated markets confidently.
Additionally, why not join our active Telegram group? Connect with fellow investors, share insights, and stay updated on the latest in trading strategies and stock market trends. Join now and start your journey to becoming a sharper, more informed investor!
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