hi I'm Seth freudberg and I'm the head Trader of S&B capitals options trading desk here in Manhattan and with the FED on a path to continue to reduce interest rates so that the economy doesn't fall to a recession there is a problem for Traders and investors seeking cash income from their Investments because the interest rates earned from bonds and short-term money market funds is just not going to cut it anymore and the good news is that there is an easy solution to this problem using a very easy to understand option strategy that we're going to
be teaching you in this video we're going to show you how you can earn $1,000 a month or more in cash income from your portfolio by combining the naturally modest level of dividend income that you can earn by owning shares of stock with an easy tolearn option strategy that can get you to your monthly cash income goals much more quickly than you'd think now before we get into the option strategy that we're going to be teaching you in today's video if you're absolutely brand new to options trading and you don't know much about how options
work we've put together a video for you to understand options Basics and if you click the video appearing on your screen right now it will lay the groundwork for you to understand the option strategy that we'll be sharing with you in this video Then when you're finished you can come back and watch the rest of this video to illustrate how this works let's pull up a chart of UPS United Parcel Service the well-known package delivery company with the brown trucks driving around all over the place and as you can see UPS closed at 13.58 on
August 1st of this year just a few months back and as you can see UPS has been selling off all year and this technique we're going to be showing you actually performs best with stocks that have sold off to stomach scent but are considered long-term solid Investments so UPS would be a good candidate for the technique we're going to be sharing with you in this video now something important to understand about UPS is is that while it's not what the financial markets refer to as a dividend Aristocrat which is a stock that has raised its
dividend for at least 25 straight years it's actually raised its dividend for the past 22 years in a row so it's actually getting close to that stature and prior to August 1st the most recent dividend which was issued on May 10th was a163 per share so let's say that our goal was to earn $1,000 a month in cash income and let's say that on August 1st of this year we owned 700 shares of UPS which as you can see would have been worth $927 at the close that day now think about it if you own
700 shares of UPS then when that dividend of $163 per share is paid you'll collect $1,141 which comes out roughly to $380 per month so then how are we going to get to $1,000 a month in cash from our ups investment if we have a 620 shortfall every month well let's take a look at how this can be done so let's pull up an options chain that expires about a month later uh from August 1st which is the August 30th 2024 options chain for ups and let's say that we look for a call option is
high as possible up on the options chain with a price of at least 90 well in this case would be the 136 call priced at 95 and so let's go ahead and sell seven of those when we do that owning shares of stock and then selling one call for each 100 shares that we own when we do that which is what we've done here because we've sold seven calls against our 700 shares so one call for each 100 shares when we do that we are entering into what options Traders refer to as a covered call
position now you might be wondering why we insisted that the price was at least 90 and so to answer that let's take a look at the cash flow from selling those calls and as you can see we received that price of 95 cents but remember each options contract relates to 100 shares of stock and so we multiply that price by 100 and we sold seven of them so when you multiply it all together we end up with $665 in cash for the August 30th trade and remember we had a shortfall of $620 on a monthly
basis to get to our goal of $1,000 because the dividend amount only provided us with $380 per month and so now you can understand why we insisted on at least 90 cents for the call we selected because much lower than that and we would not meet our monthly income goal let's move to the day that this option expired August 30th and as you can see the stock itself closed 12855 that day well remember we sold those 136 calls which means that on the day these options expire the stock closed below the call strike price meaning
that the call we sold expired with no value because there's obviously no value to the right to buy 100 shares of a stock at a price much higher than it's trading in the open market and therefore those options have zero value and they expire worthless meaning meeting we just pocket the initial cash flow of $665 as our trade profit and so to track our income on this initiative we're going to create this exhibit which shows that our first cash flow event is pocketing that cash from the first covered calls that we sold and then the
next event you almost could have forgotten about that is the payment of the UPS dividend itself which happened on August 19th and since that dividend represents 3 months of dividend income if you think about it because Dividends are issued quarterly we can see that that's a pretty large number a dividend of $1,141 arising out of 700 shares of stock that we own as you can see from the calculation so now the way we're going to continue to create this extra income to supplement our dividend income is that we're going to be doing this every month
and so the next options chane about a month away is actually the October 4th options chain which expires in 35 days and so we go ahead and find an option which again is worth at least 90 yet it is as far above the current price as we can get and as it turns out that is again the 136 call option which is priced this time at 92 so that meets our criteria and so we go ahead and sell 7 of those which produces in this case $644 in cash as you can see and when we
now move forward to October 4th you can see that UPS has rallied slightly since we sold that new set of 136 calls and it closed at 13125 on that date but 13125 is still well below the 136 strike price of the calls and so again results in our simply pocketing the $644 in cash that we collected initially so we'll add that win to our scorecard of cash events and then we're going to move to the next options chain that expires in about 30 more days which is the November 1st options chain and in this case
the 145 calls are the ones that yield at least 90 cents as far above the market as we can and in this case the call options located at that strike are priced at a112 which translates into $784 in pos positive cash flow for us and so when we move to November 1 we can see that UPS experienced a mild rally again closing a bit higher at 13405 again well below the 145 strike price where those seven calls were located resulting in our again pocketing that $784 as our profit which we'll go ahead and add to
our scorecard and so when you look at all three months you can see that we collected between the monthly covered call premiums and the dividend itself a total of $3,234 which resulted in an average of $1,078 per month slightly exceeding our cash flow goals for our UPS shares now before we wrap up I wanted to point out a couple of tips for trading strategies like this to meet your monthly cash goals first off you'll notice that we tried to place our covered calls well above the price of the UPS shares we owned and you might
be wondering why and that's that's because we need those shares to trade covered calls because your broker needs to know that you've got the shares to deliver to the call buyer who you sold those calls to should he wish to buy them at the strike price of those calls which is his right as soon as he buys those calls and so if the stocks price closes above the strike price of the calls on expiration day the owner will exercise those calls resulting in your shares being sold at that strike price meaning that you'll need to
Reby those shares at possibly a much higher price to continue your campaign of selling covered calls which means you'll miss out on some appreciation of those shares so make sure to sell calls as far as you can above the stock strike price while still attaining your cash flow goals if at all possible secondly this is a bullish strategy meaning that if you're not bullish or at least neutral about the stock you shouldn't own that stock at all frankly in my opinion and you certainly shouldn't be selling covered calls against it why because the biggest risk
of this strategy is that the stock goes down a lot why because if the stock goes down while your calls will no doubt expire worthless the depreciation of the value of your shares will normally be much greater than the profit you're going to make from selling the calls and bringing in that cash and furthermore if the stock drops too much to get your cash income each month you'll be forced to sell covered calls at a price that might actually be below where you bought the shares which means that if the stock closes above the call
strike price you could end up being forced to sell your shares below your initial acquisition cost which effectively locks in a realized loss on the shares and you obviously don't want to do that you want to avoid that so you want to sell your covered calls at a price no less than your initial cost basis and hopefully well above where it's trading each time you open up a new covered call and so what I'd like you to take away from today's video is that you are not limited to the dividend income that you receive from
your Investments to generate cash flow for you through intelligently applying the covered call strategy you can substantially increase your income from your dividend paying stocks which will allow you to meet your monthly cash flow goals so as you see interest rates continue to drop you'll have an answer for that problem a wisely designed covered call program on solid stocks that you believe in now if you'd like to learn three more option strategies that our prot Traders use including the unique options trick that allows you to make money while you wait to buy stocks or ETFs
at the price you want and the options income strategy that allows you to make consistent money whether the market goes up or down or sideways and how to make money on a stock or index trade even if you're wrong on the direction then click the link that's appearing right now at the top right hand corner of your screen that will open up the free Workshop registration page in a new window so don't worry you won't lose this video or you can register directly for free at options class.com
