Is Options Trading a DUMB Investing Strategy? | The Money Guys

Added: 2026-05-20

[00:00:00]Graham said that he thinks selling covered calls is the dumbest thing ever.

[00:00:03]What What are your words on this? I said it was pretty dumb. He said selling covered calls it was like pretty dumb.

[00:00:09]Can we just statement how far out of the money? I mean what do you There's so many there's so many variables here.

[00:00:15]>> Like very little out of the money. Um but within like a month, two months give or take, you know.

[00:00:21]>> How is that dumb? Because you're picking up pennies at the expense of the long-term stock market growing and there's no such thing as free money.

[00:00:28]>> That was my question. Whenever someone asks us, what do you think about this? I always default back to why. Okay, selling covered calls. Why do you want to sell covered calls? I would say there are certain stocks that I'm like hesitant on buying. For example, let's just say Chris Camilillo says you should buy Bloom Energy. Okay. I'm like, well, I don't necessarily want to do all the due diligence into why I should buy Bloom Energy, but maybe I would like to have the appreciation of this Bloom Energy. And so I go and I buy 100 shares of Bloom Energy. But the only way I justify myself to buy this 100 shares is because let's say I can get 3.5% per week on weekly call options if I want to sell covered calls. That's a good enough hedge where hey look, if it does end up going down, do I think it's going to go down on average more than 3 and 1/2%. It could. Could it gone less than 3 and a half%? It could. But still I have some appreciation of a stock that he told me I should buy. I get to watch it. I get to be more like involved with the um Okay, so let's play the other side of it. You do it. You buy the Bloom Energy and you're selling this >> and then uh Bloom does some exciting stuff and it takes off and it did and it just >> it's it's $300 now >> and your position, you know, it gets called away.

[00:01:38]>> Would you bought it?

[00:01:39]>> Uh well, I bought it kind of all over the place, but let's just say like my average I don't know why he's laughing because I made more money on Bloom Energy than him. So, you go ahead and keep laughing.

[00:01:46]>> But let's say but let's say that it gets called away, right? It did for forever.

[00:01:50]You're gonna be sitting in that position where you're like, man, >> or just like we are. That's totally on each saying that he's laughing because I made more on Blue Energy than Blue.

[00:01:59]>> Dude, I'm up like 26 grand right now on my 200 shares I'm holding.

[00:02:03]>> I'm up more than that.

[00:02:06]>> But y'all are making my point from a something I said earlier. Do you want a sports fish or you trying to feed the family? Because y'all are y'all >> come up way more than this. Y'all are no different than two buddies who go out fishing so you can tell fishing stories on the fish that you almost caught and it got away. Whereas I'm telling you there's a huge difference between investing versus speculating some of this stuff. This is this is speculating.

[00:02:28]>> It's hardly I mean sure because you're you're you're trying to but you're making money off of time >> which is what you're doing with invest >> but you explain that explain theta decay. Please explain that to understand that when he buys a stock there is a risk that it goes down. So if he's making 3% in a week, it could very well go down 6% in a week and he's net negative >> when I absolutely do. You're your your position is more bullish than my position because mine is actually a hedge against the position.

[00:02:57]>> That's why I'm up. So >> but you were speculating more than I was.

[00:03:00]>> No.

[00:03:01]>> Yes, you were.

[00:03:02]>> I bought in cheaper.

[00:03:03]>> So one of the So one of the questions I've been asking is like, okay, what what's the thing I'll show you what's the thing you're trying to accomplish here? What's the goal you're trying to achieve? What do you want your money to be doing for you? um in the instance that you're describing, that would not be one that screams to me, ooh, selling covered calls makes a lot of sense.

[00:03:17]Where a covered call position might make sense is if you're uh executive who has a highly concentrated stock position and you want to figure out a way, okay, I can't sell this position because of embedded gains. Perhaps I'm going to do some sort of strategy where I want to protect my downside, but I also want to recoup some premium on the upside to cover the cost of the put. Something like that. you're in in your in your scenario, if I was trying to just make a little bit more money on it and I was, you know, bullish on it, I would maybe just buy a different stock that would do do something differently. Uh because I agree with you, just cuz just because you can make some money doing something often times doesn't mean it makes a lot of sense. You you can go walk around the freeway and pick up cans and you can bag up all those cans. You can spend a couple hours doing that. You can take them in and trade them in and get the recycling money for that. But is that a good use of the time and was that a good use of mentality? I I don't think it's all worth the hassle factor because look, I I've had this this has happened to me so many times in my decades of investing. Like I'll meet a neighbor and they'll find out he's over here calculating returns. I've had a neighbor who find out I'm a financial adviser and they and they're like what stock do you recommend? And then you know they're talking to me what you know whether at the time it's Fitbit or whatever the the latest greatest thing is. And then what's always funny is I tell them once they get to know me I'm like I buy index funds. I mean that's what I actually do with my money is I buy index funds and it was funny as I watched the education is that you know after we get to be friends and five years in the future they go you know I looked I started looking at my annual return of all the the trading I was doing in individual stocks and then I started looking at what I was making on just the total market return or the total market or the S&P 500 index and I think I'm making more money on the S&P 500 or whatever and I'm like yeah it's amazing and you didn't have to stress out and and think about everything that was going on.

[00:05:00]That's that's the reality I try to share with people because even if you and this is let me play devil's advocate cuz even if you weren't selling the covered call where they you got it taken away from you >> if it goes shoots up I've experienced because I even have a story back in 2008 I called all my buddies and I was like look Apple stock right now is trading at a price that is the equivalent of what their physical assets I'm not talking about their the actual IP and intellectual property I'm talking about the campus and other things. This stock has been beat up so bad. I was like, "This is a the biggest no-brainer. We should buy some Apple stock."

[00:05:38]>> So, me and some buddies, because I don't buy a lot of individual stocks. I'm an index investor. We bought Apple stock.

[00:05:45]I after and let me ask you, this stock you bought, would you have sold it if it was up 200, 300, 400%. Would you have taken your money?

[00:05:54]>> Probably not.

[00:05:54]>> You would have kept it. You would have just rolled forever.

[00:05:56]>> I honestly ride or die >> have never really sold stocks. The only thing I've ever sold really >> Do you have permanent portal on everything except for Robin? Robin Hood. Yeah, cuz I that was a different thing.

[00:06:07]>> You would You're the type Jack. You're the prospect that we would get. I want to get back. Don't let me get off topic on that.

[00:06:13]>> $10 a share for Robin Hood.

[00:06:15]>> Wow.

[00:06:16]>> Jack, it would be the prospect that comes to us and it looks like a quilt of his life. It's the It's the quilt of Jack's wonderful life because you can see what he was doing in every decade of his of his life.

[00:06:25]>> Three and a half%.

[00:06:26]>> Three and a half%. Guess what time? How long?

[00:06:29]>> This is one week. If you sell a call 25 cents out of the money on Robin Hood weekly calls, you can get three and a half%. This already, not this is just linear growth. Not even counting compound interest times 52. This is 185% return on Robin Hood over the course of a year.

[00:06:47]>> What price did your bloom get called away at?

[00:06:50]>> Uh, it got called away at a few different I mean just like I had quite a few different options. It was like 88, 92, 94. I was making money on all of What's it trading for now?

[00:06:58]>> 280 bucks.

[00:07:00]>> I would argue that the long position you missed out on did not compensate for the ROI you got in the covered calls, right?

[00:07:08]Like had you held it.

[00:07:09]>> But I'm not I'm not observ I'm just observing it in terms of what is the growth expressed as a percentage.

[00:07:13]>> Sure.

[00:07:14]>> And so like and also I had 200 shares because guess what? It started going up and I had 200 shares that didn't get called away from me like you know I'm just going to ride it out and I did and now it's at 200 and whatever dollars.

[00:07:24]And so I'm just saying a company as solvent as Robin Hood. Do you think that it's going to zero in the next year?

[00:07:30]>> I I haven't looked at their financials.

[00:07:32]I wouldn't >> probably not >> I wouldn't I met Vlad Tennv. We had him on the podcast. The CEO founder of the company. Everything seems totally great.

[00:07:39]Love the company. Have used the app.

[00:07:41]Like I I invest on the app. It's phenomenal. And so like why if the company doesn't go to zero assuming that premiums stay the same, right? You'll get 185% return in a year.

[00:07:51]>> But is this the best use of your time?

[00:07:53]This is the point >> for me. Is is it the best use of his time to be hunting for a coffee that's a dollar cheaper, >> right?

[00:08:00]>> It's the hunt, >> right? Is it the best use of your time to buy those shirts because they give you at checkout an additional 5% 5% off when you add other talked about that before the episode.

[00:08:10]>> Let me bring it back to why I don't love individual stocks.

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[00:09:29]>> Let me bring it back to why I don't love individual stocks. Because I just gave you the perfect example of Apple. We got in in 2008, dirt cheap. Me and buddies all threw a few thousand bucks at it.

[00:09:40]When it went up threefold, I jumped out because I was excited. I made 300% in a short period of time because when the market recovered, it came back quick because everybody else caught on that.

[00:09:50]Hey, Apple's a pretty good company to own. My other buddy, I think he might have held on for four times. But the the thing is, we all dropped off. One of my buddies, he still owns it.

[00:09:59]>> He never got out.

[00:10:00]>> So, I know he might be the jack.

[00:10:05]It's worth No, it because I think he put in 5,000 bucks. It's worth over half a million dollars from that one holding.

[00:10:12]So I mean that but I'm telling you that the but that sounds great but the majority of us are going to exit.

[00:10:18]>> This is not this is not anything that I would recommend publicly because it's like you need to this is purely logic.

[00:10:25]No emotions whatsoever.

[00:10:26]>> What Jack is trying to say is that he's able to make over 100% a year >> with little downside if he keeps doing covered calls. Right? Because if he gets the shares called away, he could always buy a little more and make another more shares.

[00:10:38]>> But the problem is% there is some long-term because you're getting called away on its short-term holdings. So you're paying you're paying ordinary income tax rates instead of the long-term capital gain.

[00:10:47]>> I mean, but okay, when you buy a position that actually does go down, that doesn't come back and you made a poor purchase, you can't get those dollars back into the Roth. I'd ar my opinion is if you're going to do those those sort of strategies, uh I think the losses would likely be more valuable than sacrificing Roth dollars, you will not be able to replace Roth and you only get 7500 in there at a time. You make one bad call that loses you 20, 30, 40 grand. That's like years and years and years of contributions you won't get back unless you have another, you know, investment that hits. I would argue the tax drag is something I'd factor into my calculation and I would consider a tax.

[00:11:22]So even QQQ, right, for example, you can sell daily call options on QQQ and if you extrapolate that over the course of a year, it's like a 26% guaranteed return. If you were holding QQQ in your Roth IRA, why would you not guarantee a 26% return as opposed to what you know what other way you could you could get that?

[00:11:40]>> It were a guaranteed 26% rate of return.

[00:11:42]That was an assured thing, why wouldn't every fund manager in the world be doing that? Why would >> a volume investor, right? Because >> well, they do covered call ETFs. They certainly do, but not ones that are guaranteeing 26% rate of return. Cuz once an inefficiency exists, we live, we operate in a capital market that adjusts pretty quickly. So yeah, inefficiencies can exist, but once inefficiencies get exploited, they then become efficient.

[00:12:07]So I'd argue I don't think something like that has staying power where even if you made three and a half% for a week, and if you did that for multiple weeks, I don't believe that that would sustain throughout the course of a year.

[00:12:17]So, I think it's illogical and irrational to assume that you could extrapolate 185% rate of return. No different than if you and look, it's not the exact same thing, but if you go to a casino and you all right, I hit red. I hit red. I hit red. Well, if I did it a 100 times, think about how much money I'd make. That's not the way that it works.

[00:12:36]I mean, you can get three ten of a percent daily on QQQs at the money, which is not too bad.

[00:12:42]>> But you do real like you you said you make 100 was it 185% or >> Yeah. on Robin Hood selling covered calls.

[00:12:47]>> There's if Bose's exactly right. If you could actually do that repeatable, you know, in a guaranteed way, people would be making a there'd be a you'd be able to do that. And there are structures Carter brings to us all the time these crazy structures with, you know, that you can set. He's going to be mad I said the word crazy, but he he's he dab he looks at those things where they do try to play these crazy arbitrage situations and they're interesting, >> but it's not something I don't know. I maybe this is >> I think a lot of the reason why billionaires don't do it is just because it's a strictly like volume problem.

[00:13:20]There's not enough volume.

[00:13:22]>> Why not millionaires? I I agree with >> a lot of millionaires do. Yeah. I mean a lot of people retire just doing the wheel strategy.

[00:13:27]>> What's the wheel strategy?

[00:13:28]>> You sell a put and then if you get a stock put to you, then you sell a call to get it called away from you.

[00:13:33]>> I've never heard of that.

[00:13:34]>> I would ask you to to track your time on all these things too because I think if you add the time element to to all these hobbies, >> it seems like it's a hobby. This is something you enjoy. You're not doing it so much for the economic outcome. You're doing it for the >> This is the same problem I have when people try to compare my index investing to like real estate investing. I'm like, yes, lever debt is going to do incredibly well compared to an index fund, but let's put into how much time you have to put into the real estate and everything. The time that's going on these strategies is worth something, too.

[00:14:00]>> Yeah, I sell calls on maybe 5% of my portfolio, 10% of my portfolio transparently. So, this is just play.

[00:14:07]and and yes, I have lost out on a lot of gains when stocks have gone up, but I've also decreased my level of loss when stocks have gone down. And if you extrapolate this as a return, maybe expressed on an annual basis, I've beat the market like consistently since I've done >> counting Bloom. I'm going to >> counting Bloom. I I made money on Bloom.

[00:14:25]I don't understand.

[00:14:25]>> Not the shares that got called away, though.

[00:14:27]>> I did make money on the shares that got called away.

[00:14:29]>> 3%.

[00:14:31]>> Yes, that in a week. How was that bad?

[00:14:33]3% in a week is 15. They're up 200% since then.

[00:14:36]>> But I'm talking compared to like the average stock market.

[00:14:40]>> Here's what I can't wait to see, Jack, cuz y'all already y'all have already put yourself in a box cuz you said you're going to let us see your portfolio at the end of the show today. So, I So, we're going to get to look at your portfolio. You've also because we've all gotten friendly. I kind of know what you make to a degree.

[00:14:52]>> We're going to judge you hard if we know how well you're doing in life and we look at your portfolio. We're expecting to see magical stuff because otherwise that right now because otherwise I want to I want to feel like you're here right now. You're growing with your you have so much capacity to grow with your good income.