Vocabulary
Cover Call (CC) - selling the right (contract) for someone to buy a 100 shares at a particular price (Strike) at the end of a time period (typically a week or month)
Premium - amount you collect for holding a contract to sell your shares at a Strike (price)
Cover Calls
If a stock price closes above your CC Strike, you will share your shares at the Strike price and you get to keep the premium
If a stock price closes below your CC Strike, you keep the shares and premium
This is a strategy that I learned from someone on TikTok. You can find him at the following links below.
He livestreams on YouTube, TikTok, and a couple other platforms
FYI
Must simple and predictable (he created this strategy for his 9 year old daughter decades ago)
This strategy looks to get in and out of the market weekly to be in cash - even better for a ROTH IRA account that is tax free
This account will never ask you to send money
He does have a subscription to join his group every day in the morning when he trades live for a few minutes, but it is optional and he never sends out SPAM for more paying customers
You can actually DM him with your time zone and he will call you to answer any questions about his strategy for FREE. I have never tried it, but I recommend you watching his videos and his live streams on TikTok to learn a little first before DM
Who is this strategy for?
Individuals who have a larger portfolio that can easily purchase 100 shares of a stock
People who may be near retirement, in retirement, or anyone who wants to make 1% a week with minimal time commitment
Someone who wants a simple strategy to earn 1% a week for a potential of 40-50% ROI
If you are skeptical about the market direction overall and want the ability to be in and out of the market quickly
Three Rules to his Strategy
Stocks must have increasing dividends for the last 20-25 years or more (Dividend Aristocrats - 25+ ys, Dividend Kings - 50+ yrs)
Must be optionable and have weekly cover calls that can attain 1% a week
Never sell at a loss. If things go against our position, continue to collect 1% each week. Shares should not be sold lower than your purchase price. Though we should be out of each trade and back in cash weekly, there may be times we may have to roll calls to assure that we sell at our purchase price of shares
Stocks we select from
Proven dividend stocks that continually increase dividends over time. He will often say 20+ years, but I have a feeling he may have other stocks on his list that are only 10+ years or even less if it is a company he really likes or if they were 20+ years before, but recently had an equal or lower dividend payment for the first time.
Companies that has been around through tough times (e.g. recession, depression, war)
Look up Dividend Aristocrats (25+ years - this will also cover Dividend Kings or 50+ years). Note that not all of these have weekly options so you can get rid of them from your list.
Reminder that just because they meet the criteria above it does not mean we will invest in them all the time. There are several other factors we will address below.
Strategy/Analyze
Stocks should have at least 20-25+ years of increasing annual dividends
Two-weeks out to ex-dividend date
He has noticed that stocks tend to rise two weeks out when the ex-dividend date is approaching
He does not care about collecting a dividend, only the premium from the cover call and the difference in strike price
At the end of week, he will often close the premium and sell his shares unless the difference drops you below a 1% return
If he is unable to close his cover call on Friday, he will access on Monday after the premium has been taken on whether he needs to sell another CC
There are a few rare occasions that he may have
Must be optionable; must have weekly options (1% of investment available for weekly options)
Stock should be currently uptrending or sideways (use the 200 day or other MA, trendline to determine direction)
Last 30-90 days - look at the highs and lows; stock should not be at a high or dropping below the low
Check for seasonality and if the stock has a history of movement during that ex-dividend period. Does it typically go up, down, or sideways around the same time of year?
Other factors that he considers
Price to Book Ratio should be <1.0% to provide intrinsic value (stock is worth more than it is currently trading). For example, if the PB Ratio is less than 1.0% and the company is bought out or sold, chances are you will receive a price higher than your current share price due to the book value of the company. This offers a ton of upside since that protects your share price.
Company should be something you are willing to hold and dollar cost average into if price goes against.
May decide to add stocks that do not have 20+ years of dividend increases
Large number of subscribers or members (Costco, NFLX - though he typically avoids positions on stocks above $300/share)
Stocks that have been around for a long time (through recessions, wars, pandemic, other world events)