01-01-2022, 07:52 PM
QQQ- Buy 100 shares at 398, so a $39,800 capital commitment. I would sell the covered call 30 days out at strike 406 which is 2% out of the money. The monthly premium received would be $415. I will receive the small dividend. We'll call it $40 per month. The commission would be one dollar or less times a potential closing trade sp $2 /month. Initial yield on this trade is 415+40-2 so $453. So a 1.14% monthly yield. If the QQQ runs through my strike my max profit is capped at an additional $800. I would have to rebuy shares and repeat the process. Similar to what a ETF does. They actually use European style options which are not exercised prior to expiration. They just buy them back at a loss if necessary and move on to next month. If you held the ETF you get some portion of that $800 in share appreciation or larger dividend that month.
SPY- Buy 100 shares at 475, so a $47,500 capital commitment. I would sell the covered call 30 days out at strike 485 which is 2% out of the money. The premium received would be $230 I will receive the small dividend. We'll call it $55 per month. The commission would be one dollar or less times a potential closing trade so $2 /month. Initial yield on this trade is 230+55-2 so $283. So a monthly yield og spt .53% a month. So less appealing than QQQ but historically less volatile. If SPY runs through my strike my max profit is capped at an additional $1000. I would have to rebuy shares and repeat the process. Similar to what an ETF does but they simply roll them and eat the option loss.
IWM-(Russel 2000)-Buy 100 shares at 223 so a $22,300 capital commitment. I would sell the covered call 30 days out at strike 228 which is 2% out of the money. The premium received would be $265. I will receive the small dividend. We'll call it $17 per month. The commission would be one dollar or less times a potential closing trade so $2 /month. Initial yield on this trade is 265+17 so $282. So a monthly yield of about 1.26% a month. If IWM runs through my strike my max profit is capped at an additional $500.
I'll give this some thought and probably launch a monthly round early next week. I do a similar version of this with some of my individual stocks so I anticipate a somewhat less volatile outcome.
One advantage I see is I will not be receiving my own capital back to pay a "dividend". My shares will be worth exactly what the index shares are worth. Potential for at least the same dividend as the ETF, with a chance of grabbing a little more capital appreciation. We'll see how it goes. It's far less complicated than it might sound.
SPY- Buy 100 shares at 475, so a $47,500 capital commitment. I would sell the covered call 30 days out at strike 485 which is 2% out of the money. The premium received would be $230 I will receive the small dividend. We'll call it $55 per month. The commission would be one dollar or less times a potential closing trade so $2 /month. Initial yield on this trade is 230+55-2 so $283. So a monthly yield og spt .53% a month. So less appealing than QQQ but historically less volatile. If SPY runs through my strike my max profit is capped at an additional $1000. I would have to rebuy shares and repeat the process. Similar to what an ETF does but they simply roll them and eat the option loss.
IWM-(Russel 2000)-Buy 100 shares at 223 so a $22,300 capital commitment. I would sell the covered call 30 days out at strike 228 which is 2% out of the money. The premium received would be $265. I will receive the small dividend. We'll call it $17 per month. The commission would be one dollar or less times a potential closing trade so $2 /month. Initial yield on this trade is 265+17 so $282. So a monthly yield of about 1.26% a month. If IWM runs through my strike my max profit is capped at an additional $500.
I'll give this some thought and probably launch a monthly round early next week. I do a similar version of this with some of my individual stocks so I anticipate a somewhat less volatile outcome.
One advantage I see is I will not be receiving my own capital back to pay a "dividend". My shares will be worth exactly what the index shares are worth. Potential for at least the same dividend as the ETF, with a chance of grabbing a little more capital appreciation. We'll see how it goes. It's far less complicated than it might sound.