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We were able to increase our monthly cash flow in July (2021) by over $400 from options income. We earned this income from selling call and put options.
Buying and selling options contracts isn’t anything new to me (I have done this for years) … but now we have a strategy.
The goal of this strategy is to increase our monthly cash flow. Then we will use this extra cash to buy stocks that will increase our dividend income stream.
Today I would like to share our latest monthly options income report.
Just like we detail our monthly dividend income … the plan is to do the same for our options income and provide details on how we earn this cash.
Below you will find a quick breakdown of our strategy. Then I will cover where we earned that income.
Generating Income from Selling Options
There are two main strategies we are using to generate income from trading options – selling cash secured puts and selling covered calls.
Our goal is to sell out of the money puts and calls … and then (hopefully) let the option contract expire worthless.
In some cases, we roll the contract out further to avoid it being exercised … as our main objective (for now) is to increase monthly cash flow.
Usually we try and only sell puts and calls that will expire within 1 to 4 weeks of the transaction date.
However, in July we did sell a covered call that expires in 5 months. The cash generated from this option was just too good to pass up (see the options income summary below for more details).
Let me breakdown each of the two strategies a little bit further …
1 – Selling Cash Secured Puts
One way we now generate monthly income is by selling cash secured put options.
Here is a quick summary of our strategy –
- must have enough cash in our brokerage account to buy 100 shares of the stock at the strike price
- only sell puts on a stock that we wouldn’t mind holding long term
- sell out of the money puts
- let the puts expire worthless (if possible)
- sell options that expire within 4 weeks (for now)
These again are just some high level criteria we look for when selling cash secured puts.
Just a few additional details about selling cash secured puts …
The term “cash secured” means we have enough cash in our account to purchase 100 shares of the stock at the strike price if needed.
Any put option that is considered “out of the money” means that the strike price is below the current share price of the stock.
2 – Selling Covered Calls
The second strategy we are using to generate extra monthly cash from options is selling covered calls.
Here is a quick breakdown of what we look for in selling these options contracts –
- own at least 100 shares of a stock (1 option contract = 100 shares of stock)
- sell contracts that are out of the money (the more the better)
- sell covered calls that expire within 4 weeks (this is subject to change)
- let the call option expire worthless (if possible)
- sell covered calls on stocks that I am okay with having to sell
As I said earlier … these are just some high level guidelines for now that may be tweaked in the future to increase our cash flow.
I would also like to point out … every call contract we sell is “covered” … meaning we own at least 100 shares of the stock.
And … a call is considered “out of the money” when the strike price is above the current share price of the stock.
Options Income July 2021
During the month of July, we earned an extra $439.68 from selling options.
As I noted in our July 2021 dividend report, most of these funds were invested into our dividend income portfolio. Selling these options contracts over the past 7 months has helped us invest more dollars into our passive dividend income stream.
Here is a quick breakdown of how we generated this income –
- Vanguard Total Stock Market (VTI) Calls – $224.31
- Cincinnati Financial Corp (CINF) Calls – $109.31
- Cisco Systems (CSCO) Calls – $42.25
- Palantir Technologies (PLTR) Puts – $42.17
- Altria Group (MO) Calls – $11.36
- AT&T (T) Calls – $10.28
Total Options Income July 2021 – $439.68
It is worth pointing out … we have 5 options contracts sold in July still open (at the time of this writing) that have not expired or been exercised yet. As of now (beginning of August), it appears most of these contracts will expire worthless … which is our goal.
One of the call contracts (VTI) has a much further out expiration date (December 17, 2021) … so this will be one to keep an eye on.
I’d also like to mention that in many cases we sold multiple option contracts during the month for a particular stock. For example, we ended up selling 3 different covered calls on our Cisco (CSCO) shares during July.
Sometimes these contracts expire worthless and sometimes we roll (buy it back and sell a new one) the option contracts. The totals noted above are the sum of all the contracts per security.
2021 Options Income Totals
The month of July was our second highest income generation month for selling options this year (2021). Overall, we have added $1,963.01 of extra income by selling call and put options in 2021.
Here is a monthly breakdown of our options income –
- January – $233.17
- February – $130.87
- March – $386.89
- April – $471.19
- May – $152.77
- June – $148.44
- July – $439.68
For more details on our first half of the year results, check out our June 2021 option income summary.
2021 TOTAL Options Income – $1,963.01
This total comes out to a monthly average of $280.43 … or the equivalent of my monthly car payment.
For my wife and I … we are using the income earned from selling options to invest back into our dividend income portfolio. Although … using it to make my monthly car payment sounds nice too.
Summary – Options Income July 2021
So far in 2021 we have generated an extra $1,963.01 of cash from selling options. This includes both cash secured puts and covered calls.
I consider the time I spend (which isn’t a ton) on this effort as a side hustle or part time job. Yes, this money will likely be taxed … depending on our overall tax obligation.
And there are some risks involved with selling options, which I believe we have minimized as much as possible.
The good news is that we haven’t had to sell any stocks from our portfolio … yet. And we haven’t had to buy any stocks (other than 100 shares of PLTR) for our portfolio that were not planned for.
Almost all of the extra cash we have earned (close to $2,000) has been invested back into our dividend income portfolio. This will help to accelerate our other passive income stream as well.
For example, investing $2,000 in a 3% dividend yielding stock would add another $60 of recurring annual income for us! And not to mention … the annual compounding growth that will eventually lead to.
The plan for the remainder of the year is to continue to grow this income stream by minimizing risks as much as possible. We will continue to dump all of the cash we earn back into our dividend income portfolio.
The goal for now is to generate an extra $3,500 in cash by selling options in 2021. I think we are right on track.
Do you sell options to generate cash flow? What do your results look like?
