How To Sell Options | Step By Step Tutorial (Covered Calls & Cash Secured Puts) #Finance

hey everybody welcome back to whiteboard Finance my name is Marco and I’m here to help you master your money and build your wealth in today’s CashNews.co

I wanted to show you how to actually make money on Shares that you already hold by collecting premium through options contracts or getting in on a significantly lower strike price or a price that you want to own the stock at anyway uh and getting paid to do it so the example that

I’m going to use today is micro strategy so uh micro strategy is essentially a Bitcoin Treasury company uh they hold about 380,000 Bitcoin at the time of this recording and the reason I’m using micro strategy is because they are extremely volatile and with volatility

that juices up the premiums on these options contracts significantly so when most people think about options contracts they think that you’re trying to predict a uh increase in the future price of a stock right you think the Stock’s going to go up so I’m going to buy a call

meaning I have the ability to call this contract call these Shares from someone else in the future at a lower price than um what it’s actually trading for or a higher price than what it’s actually trading for depending if you’re buying calls or puts so um in this

situation we are the casino we are the house we are writing the paper we are selling these options contracts and collecting a premium in doing so we are not buying the contracts okay so let me make this a little bit uh easier for you to visualize so this is Robin Hood we’re looking at micro

strategy ticker symol MST Mister um and right now this stock is incredibly volatile if you look at the volatility for the last week this thing is all over the place it’s anywhere from $300 all the way to $540 and back down and up and sideways and all over the place right so the reason

I’m showing you this is because you can make a ton of money um anywhere from like 1 to 10% even more depending on how far out you go uh but let me break this down so the reason I’m using Robin Hood is because uh visually it’s a lot easier for me to show you this on Robin hoods so

you can visualize how this trade actually looks like so if I go to ticker symbol mstr this is micro strategy I’ll click on trade micro strategy options and right right here what you see in front of you is called an options chain okay so on the leftand column you have what’s called a

strike price just think of a strike price at which the options contract strikes at meaning the underlying share price right now it’s trading at $380 as we speak and you can see the different strike prices on the left um don’t worry about Break Even percent change all that stuff

I’m not going to go into like the Greeks like uh Delta and Theta and Gamma and all that stuff that’s outside the scope of this CashNews.co I just want to show you how much you can collect and how to use this strategically and then I’ll also show you the money breakdown uh using

this spreadsheet here as well so say for example uh you pick an expiring date so remember this is just the contract think of it like when your uh auto Insurance policy renews or your homeowners Insurance policy renews it renews at a certain date so what this uh

time frame is is is just saying hey this contract that I’m writing is going to uh expire on a certain date uh so let’s go out uh 10 days let’s go to December 6th right so if I go to December 6th and I want to sell a covered call usually what happens is and this is my real case

scenario I have Shares of micro strategy I’m not going to say how much but um if you have at least a 100 Shares of the underlying security the underlying stock you then have the ability to write what’s called a covered call the reason it’s called

a covered call is because it’s covered you have 100 or increments of a 100 Shares of the underlying so if I have one if I have 100 Shares I can write one covered call there’s ways to do this without owning the other underlying with poor man covered

calls but that’s outside the scope of this CashNews.co so if I have 100 Shares of micro strategy I can write one covered call if I have a th000 Shares I can write 10 covered calls if I have 2,000 Shares I can write 20 covered calls contracts

every options contracts control 100 Shares of the underlying Equity okay so if I go back to the screen say for example uh the micro strategy is trading at $378 right now and I wanted to go on to the Future to December 6th and I’m able to sell these different

contracts so say for example we’re going to use a nice even number of let’s say 500 bucks Okay so basically what this is saying is that Marco is writing one options contract uh and he’s selling a call so he’s selling what’s 100 Shares of the underlying

with a $500 strike price so meaning the Shares of micro strategy uh will go to $500 and it expires by December 6th so there’s another person on the other side of this trade so there’s someone buying a December 6th call okay and they’re paying a premium to do so

who does that premium go to it goes to you the writer of the option okay the seller of the call contract so if I click on this right here you’re going to see a price of $115 so what does that mean do am I collecting $11 to do this no I’m actually collecting $1,100 to do this and the

reason for that is because remember an options contract covers 100 Shares of the underlying so you move the decimal place over two places tens hundreds so right now this is worth $1,088 and these change all the time because the price of the stock is changing all the time so if I

were to look at this right here my expected Profit and loss would be whatever the premium is that I’m collecting in this case is changing all the time but this would be if I sold this for uh $10.85 I would collect 1085 right so if I continue um you can you can say whatever

price you want to sell these at the bid and the ask spread is basically what the lowest is this is going to get filled almost instantly 1125 may never get filled if it never gets that price but let’s just use um 11 bucks just for the sake of this uh example so if I were to sell 100 of these

Shares or one options contract at $11 I’d be collecting $1,999 n97 from here I want to explain what would happen if Robin or if micro strategy actually reaches this price of $500 what I want to show is I want to sh say hey I own 100 Shares of micro strategy

depending on the uh cost basis meaning how much did I pay to actually acquire these 100 Shares of micro strategy let’s say I bought 100 Shares when micro strategy was trading at $340 that would be 340 time 100 my cost basis in this trade would then be $34,000

say you got in really early say you got in at 150 bucks say you got in at 100 bucks right this can change for this example I’m just going to use $340 a share at 100 Shares I own this for $34,000 and this could be all over the place I’m just using even numbers to make

this math really simple so you can visualize this better so remember what was our strike price from before so we’re we’re hypothetically going to sell one covered call at a $500 strike price only 10 days away from now okay so in 10 days if this never meets say micro strategy never

reaches $500 a share nothing happens your your Shares don’t get called away you simply collect the premium and you can keep doing this over and over and over again the problem with this strategy is that if micro strategy Pops to 6 Seven 8 900 bucks a share well then you just

kept your upside at 500 you understand however if it never reaches 500 you are not under the obligation to get your Shares called away that’s why it’s called a covered call uh someone is calling those Shares away from you you keep your underlying uh and

basically you cap your upside so this this is what a lot of Hedge Funds do they’re they’re long and short at the same time so if I go back to the spreadsheet uh the strike price is $500 okay the premium collected what would the premium be if we sold this at $1,100 or

$11 a share right or contract times1 uh you would receive $1,100 that’s the premium we’re collecting it would be $1,00 99.97 but let’s just use 11100 for even numbers and what would the strike proceeds be so if these were to get called away remember you’d be selling 100

Shares at $500 a piece because it met the strike price by the expiration date um and then the proceeds would obviously be 100 time 500 which would be $5,000 so you can see here two things that I want to break down uh your toal total Profit would be $177,100 and the

math is basically this your cost basis in the trade is 34 Grand it cost you 34 Grand to own these 100 Shares you collected premium of $1,100 okay and the strike proceeds if the strike price does get met would be 50 Grand so in this case you would net $177,100 before

Taxes right however the other thing I wanted to highlight which is very important is this so say for example you’re a long term holder of micro strategy and you know you want to keep your Shares but you still have a bunch of Shares that you

have say you have 6 7 800 Shares and you write 678 contracts right based on those underlying Shares what some people do is they go so far out of the money to where they think hey these call or these Shares are never going to meet the strike price

and these Shares are never going to get called away so say for example I pick $850 expiring December 6th so do people really think micro strategy is going to hit $850 in 10 days well depending on the price of Bitcoin it very well could and that’s why these premiums are so

high because their stock is all over the place the volatility is vitality and the volatility is what’s juicing up these premiums on these options contracts if I were to trade something like vti or SCD or something that’s very stable it doesn’t move much like a dividend stock these

premiums are not going to be anywhere near what you see here so remember we’re making $1,100 in 10 days if it never reaches $500 what some people do is they go so far out of the money so far um out ahead in a strike price if you will that they think hey this is never going to happen uh until

it does famous last words but at that point you would then just plug in let’s use 850 as the strike price you would collect $103 in premium okay remember we’re you just move the decimal place uh two places over tens hundreds so you’d collect $103 so I’d collect $103 in

premium if my strike price is $850 my cost basis is the same but the strike Pro proceeds would be $85,000 uh which is a total Profit Profit of $551,000 okay but the one thing I wanted to highlight is this let’s go back to our example of 500 bucks okay so 500

bucks say they never get called away okay so if we go to a c a strike price of 500 premium collected let’s use 1100 uh strike proceeds 50,000 here’s the one thing I wanted to highlight your running cost basis actually gets lowered because think about it you’re into this trade for

$344,000 you’re collecting $1,100 in premium that’s money today no matter what you’re collecting that 1,100 bucks whether your Shares get called away or not this is what you’re collecting your running cost basis is then lowered by $1,100 so your cost per

share went from 340 to 329 just by selling these covered calls do you see how powerful that is so if it if you want to keep collecting premium you’re going to keep lowering and lowering and lowering your cost basis until that uh strike price is met if ever right so uh the cool thing about

this is that you can do this on the complete opposite side as well so what do I mean by this not the opposite side by uh someone else being the buyer of the call I’m talking about cash secured puts so say for example you have uh let’s use something that’s a little bit below the

strike price so if I use December 6th again and I want to sell a put okay remember someone is putting that contract to you you can then say hey I like micro strategy I like the thesis but I think $379 per share uh is too expensive right now I don’t want to go in and just buy that amount of

micro strategy say I have uh 37,000 $950 sitting in my trading account right I could choose to buy a 100 Shares today right now I could buy that right now or I can use the cash and write a secured put so a secured put is basically saying uh in the last example we had a covered call

where I have a 100 Shares and I’m writing the contract because I have the 100 Shares as collateral it’s no different than having Equity in your home and using a helck right uh but for the sake of this example say I just have have the

cash but I don’t want to buy micro strategy at $379.00 right what you can do is that money is sitting in your account you have the cash you can choose a strike price below what it’s trading at today so say for example I really like micro strategy at let’s use a nice even number

$315 So within 10 days if micro strategy ever reaches $315 you would then you would then come out how much money out of pocket it would be $31,500 to buy the underlying 100 Shares remember just move the decimal place over twice 3150 31,500 because remember one options contract

controls 100 Shares so if I added this if I go back if I take off the 850 you would then see if I wanted to continue with this cash secured put um I could probably get let’s see if the bid in the ask is 1335 the ask is 14450 let’s just say for even numbers for a

spreadsheet I wanted to collect uh for uh $1,400 okay what I would then do is is I wouldn’t have any Shares or maybe I do have Shares I just want to get in a lower strike price right doesn’t matter my cost basis would then be 31,500 the strike price is

315 premium collected is $1,400 I’m into this trade for for $30,100 cuz remember we’re paying $311,500 for those $100 Shares but we’ve also collected $1,400 in premium so effectively I own 100 Shares of micro strategy at $30,100 does that make

sense so that’s why covered calls and cash secured puts especially on a volatile stock like this uh it’s very powerful you’re collecting a lot of Premium how however when something is as crazy as micro strategy there’s a reason why the premiums are so high uh say for example

uh this executes at 315 and then micro strategy drops to 265 right so even though my running cost basis is $31 per share remember 30,100 divided by 100 um micro strategy is now trading at 265 so I’m still in the hole right so the beauty of this is that you can do this any other way it’s

just another tool in your toolbx um so what I’m actually doing is I’m writing covered calls on my 100 Shares I’ll show you a real trade that I did so this is an actual covered call that I wrote against my micro strategy Shares so I wrote one

contract for December 20th 2024 uh with an $890 strike price remember $890 per share and it was a covered call so what I collected in premium just by doing so was $3,249 and this was for less than 30 days okay this remember I did this on the 22nd with a uh December 20th uh expiration date so in

less than 30 days I collected 3,250 bucks just by holding these Shares right so that’s why this is just another tool in your toolbox however I wouldn’t do something like this unless you’re really bullish on the stock and you don’t mind owning a 100 uh

Shares of it uh and coming out of pocket whatever that strike price is times 100 so hopefully this was uh helpful for you I don’t trade options often uh but if I have something that’s super volatile and I have a lot of Shares of it you know why not get

paid so if I actually use I can show you a real life scenario um I don’t want to show you my cost basis but what I’ll use is I’ll use this actual uh example here so this was a December 20th uh let’s say I have 100 Shares of the underlying uh let’s just

say let’s use that same cost basis of $340 per share okay U my cost basis is lower um strike price was $8.90 the premium I collected was 3,250 and the strike proceed if that ever did hit in December I’d collect $889,000 so my running cost basis for this example would be $3,750 307 per

share and my total Profit would be $ puts on micro strategy unless you’re a very uh long-term bullish believer because then you’re buying 100 Shares of the underlying um but also this thing can run like crazy so if mine were called away at 890 and it

goes to 1,200 I’d be kicking myself in the butt right but these premiums are so juicy right now that do I mind making $ 58,221 days um you know I don’t I’ve held micro strategy for months now um almost a year but I’ve known about it for four years hindsight is 2020 it is

what it is but um I just buy Bitcoin so anyway this is just an example you can do this for any stock uh that has options trading available for it it’s a good way to get into something that like an S&P 500 fund that you don’t want to pay the exact strike price at today uh say you

have a thousand Shares of spy you can do this for spy you can do this for you know a bunch of different underlying Assets that have trading options trading available hopefully this was helpful uh send this to a friend or a family member hit the Subscribe button and

as always always have a prosperous day