Options Income – June 2021
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One of the ways we are increasing our monthly cash flow is from selling options. At the end of June (2021), we have added over $1,500 of extra cash for the year from options income.
Buying and selling options contracts isn’t anything new to me (I have done this for years) … but now I have an approach and a plan.
The goal of this plan is to increase our monthly cash flow. Then we will use this cash to buy stocks that will increase our dividend income stream.
Today I would like to start out this conversation by giving a breakdown of the income we have earned so far this year (2021).
This may eventually turn into a monthly update (similar to our dividend income reports) … but for now we will cover the income we generated from selling call and put options from January to June (2021).
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.
For now, we try and only sell puts and calls that will expire within 1 to 4 weeks of the transaction date. However, this is something I am looking to expand upon in the future.
I explain both in more detail below.
1 – Selling Cash Secured Puts
Over the past 15+ years I have made a little bit of income trading options. Most of this income was created by first buying an option contract and then later selling it for more than the original premium.
Up until this year, I had not bought or sold any put options.
One way we now generate monthly income is through selling cash secured put options.
In the future I plan to share more details around how I sell cash secured puts … but for now I will summarize it by the following criteria –
- Have enough cash in my brokerage account to buy 100 shares of stock at the strike price (1 option contract = 100 shares of stock). This this is the “cash secured” part of the put.
- Sell cash secured puts on stocks that I wouldn’t mind owning long term.
- Sell put contracts that are out of the money. This means the strike price on the option is well below the current share price of the stock.
- Let the put option expire worthless (if possible). This means I won’t need to purchase 100 shares of the stock at the strike price.
- Sell options that will expire within the next month (the less the better). For now (this could change), I don’t want to be tied to longer options contracts.
These again are just some high level criteria I look for when selling cash secured puts.
Options Income June 2021 – Cash Secured Puts
Over the past 6 months, I have generated monthly income from selling cash secured puts on the following stocks –
- Palantir (PLTR)
- AT&T (T)
- Realty Income (O)
- Omega Healthcare (OHI)
Between January and June (2021), I generated an extra $876.87 from selling cash secured put options. The majority of these funds were used to invest in long term dividend paying stocks.
2 – Selling Covered Calls
The second strategy we are using to generate extra monthly cash through options to to sell covered calls.
I will explain my strategy behind selling covered calls in a future post. For now, here is a quick breakdown of what I look for in selling these options contracts –
- Own a minimum of 100 shares of a stock (1 option contract = 100 shares of stock). This is where the “covered” term comes from.
- Sell contracts that are out of the money (the more the better). Out of the money means the strike price on the option is above the current share price of the stock.
- Sell options that will expire within the next month (the less the better). For now (this could change) I don’t want to be tied to longer options contracts.
- Let the call option expire worthless (if possible). This means I don’t lose the stock and get to keep the premium from selling the contract originally.
- Sell covered calls on stocks that I am okay with having to sell (although I’d prefer not too). I’m not selling covered calls on my Apple (AAPL) or Microsoft (MSFT) shares!
As I said earlier … these are just some high level guidelines for now that I plan to tweak as I learn more about generating income from selling covered calls. I have already realized in the past 6 months I left a lot of extra income on the table.
The good news is that I haven’t lost out on a stock yet …
Options Income June 2021 – Covered Calls
Here are the covered call options contracts that I earned income from over the past 6 months –
- Aflac (AFL)
- Cisco Systems (CSCO)
- Altria (MO)
- Palantir (PLTR)
- AT&T (T)
- Realty Income (O)
- Omega Healthcare (OHI)
Between January and June (2021), I generated an extra $646.46 from selling covered call options. The majority of these funds were used to invest in long term dividend paying stocks.
Options Income June 2021
For the first half of 2021, we earned an extra $1,523.33 from selling options. Almost all of these funds were reinvested back into our dividend income stream.
Here is a breakdown by month –
- January – $233.17
- February – $130.87
- March – $386.89
- April – $471.19
- May – $152.77
- June – $148.44
Total Options Income (Jan to Jun 2021) – $1,523.33
We have generated an extra $253.89 per month in income from selling options in 2021.
Some of these contracts expired without taking any additional action.
Other options that were not going to expire worthless were rolled into different option contracts. This is an area where I could have been more patient … and I am learning each day. But since my goal is to just generate extra cash flow, I am not as interested in actually selling any of the stocks where I am selling covered calls.
One of the cash secured put positions I sold (PLTR) that expired in the money, I let get assigned. Which meant I purchased 100 shares of the stock. I turned around and began selling covered call contracts the very next Monday to generate more cash flow.
Summary – Options Income June 2021
Over the first half of 2021, we generated an extra $1,523.33 of cash from selling options.
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 I haven’t had to sell any stocks from my portfolio that I didn’t want to yet. And I haven’t had to buy any stocks (other than 100 shares of PLTR) for our portfolio that I didn’t want to either.
Almost all of the extra cash we have earned ($1,500+) has been invested back into our dividend income portfolio. This will help to accelerate our other passive income stream as well. For example, investing $1,500 in a 3% dividend yielding stock would add another $45 of recurring annual income for us!
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.
Do you sell options to generate cash flow? What do your results look like?