Covered Calls: How I Generate Passive Income Monthly

Added: 2026-05-18

[00:00:00]In this video, we're going to be going over perhaps my most favorite option strategy, or at least one of them, which allows you to hold stocks that you already want to hold and continue to generate consistent income from them by selling options against it. This is going to be the, of course, covered call. You can also do this with puts as well. It's called a covered put, as you might have already guessed. And this is, like I said, amongst my most favorite strategies. And if you understand this strategy and you understand a couple other ones that we'll go over in this free playlist, you will be in a really, really, really, really, really strong position. Now, I will say that this strategy effectively is extremely good if you just have stocks that you generally want to be bullish on, but you want some consistent income from. It is not, however, going to do a good job at protecting your downside. For that, we need to employ other tactics, which perhaps I'll save for the Crown Trading Bible because it it really does require a lot more fundamental groundwork in order to understand a few a few other different um facets about options and option strategies, but you can start to work your way to there from here.

[00:01:06]Anyways, this effectively allows you to generate income from volatility, and it turns ownership into yield. You're basically getting yield every week or bi-weekly or however, you know, often you set it I mean, you can set up for every day to be honest with you. And again, it's very, very, very, very useful on assets that you're just kind of generally bullish on. Uh maybe not super bullish on, although you can set it up in certain ways, but you know, you generally want to hold that asset. That is the purpose of this one. Anyways, before we get into it, I do want to give a special shout out to our sponsor, Bybit. They are among the best exchanges to trade crypto options natively. We will be going over both Bitcoin options and of course traditional market options. But I think for this particular video, we will be going over traditional market options just because they it's a little bit easier to get the general idea with that first and then you can translate that into Bitcoin option parlance. But Bybit is among the best places to do that with your crypto, meaning that you use your crypto as collateral to put on options trades. And if you actually have the uh the privilege of using Bybit, meaning that you're not an American citizen, then I would strongly strongly suggest to check out the link in the description below for Bybit. Yes, it is indeed an affiliate shell link, but it does give you a bunch of different bonuses. So, it actually will benefit you and hey, you know, that's I mean, should be selfm motivating, right? Gets you more money in your pocket basically. Anyways, cool.

[00:02:26]Let's go over what a covered call is.

[00:02:28]Like I said, we're going to use this from a general stock market perspective.

[00:02:32]For Bitcoin, slightly different, but basically the strategy is this. You're going to own 100 shares of whatever stock you want to own, and then you are going to sell a call option, ideally out of the money, although there are multiple ways to set this up. And the idea here is that you're already long your stock. You're shorting a call option out of the money. And ideally, the call option will expire worthless out of the money in which you get to collect the full amount of premium. And in the event that the stock does rally up to where the call option is in the money, well, guess what? Your call is covered. Meaning you sold your call, which if it goes in the money, that means that you're going to sell 100 shares of the stock at that predefined price, but you already own 100 shares of the stock. So that effectively equates to zero, meaning you have no position at expiration. You still collect the premium. You still collect the difference between where you bought the stock and that call option strike. And then you could just go ahead and with your extra money buy more of that stock, you know, later on. Effectively, you are going to be selling your upside potential for immediate income. And I know that perhaps a lot of newer people are going to look at that and scoff at that idea because why would you sell at the potential unlimited upside for a immediate income or predefined income?

[00:03:54]Well, one because how realistic is it?

[00:03:56]Is is it to expect things, you know, your your favorite stock even to go up to infinity within, you know, 2 weeks, which is typically where we like to put these expirations on. And then two, um, look, more often than not, things ain't moving all that much. More often than not, things are going to be rangebound.

[00:04:12]That's just the way that markets are.

[00:04:14]About 70 to 80% of the time, it is a consolidation. You can certainly bet on that fact. So selling premium is going to very likely be the right thing to do.

[00:04:22]And there are, of course, certain situations where this makes more sense than others. So let's go over that. When does it make sense? So like I just kind of went over, a neutral to slightly bullish outlook. That's going to be pretty damn good. Um, of course you don't want it to be super bullish because then you, you know, you're probably going to sell too much of that upside away or possibly sell too much of that upside away. It is also going to make a lot more sense when you're willing to share sell sell the shares at a higher price. So, like I said in in the example or that we're going to go over soon, you're going to see an example where we choose a far out of the money call strike and it's like, hey, if that goes in the money and we sell it, well, [ __ ] man. I just made so much money anyways. I'm happy to sell that. I can just go buy that stock again if I really want it. I can also go to another one if I really want or I can just hold on to this money and you know wait for the next big thing. And then another time when it's going to make sense is of course during periods of elevated implied volatility. When when volatility is higher, options prices are higher. If you've been listening to this playlist, you already know this fact. Hopefully I'm hammered into your head like crazy because that is incredibly important. Um basically this is going to be best deployed when volatile is expansive naturally as with any sort of um option strate option selling strategy you know volatile expensive volatility high equals volatility expensive equals we should be selling options not buying them right now. So think about it that way. Um I I again want to really highlight here this strategy will not protect your downside or okay theoretically it actually does protect it a little bit but uh not a good strategy to protect your downside. Like I said we will go over more indepth and involved strategies in the crown trading bible that can solve the downside issues of this. Um, but it does require a few more fundamental sort of concepts to get through and it's just too much to put in a, you know, in a in a in an options 101 playlist like this. So, let's go over an example here. Again, we're going to use a stock example and basically we are going to buy a stock that is trading at $100. We're going to buy 100 shares and we are going to sell the $110 call strike. Okay. So, again, we're buying at $100 and then we're selling the 110 call strike for a premium of $3. Again, I'm just pulling that number out of my ass.

[00:06:40]Like maybe the premium is more, maybe the premium is less. Depends on volatility, obviously. So, current price 100, we buy 100 shares there. Strike price of the call 110. We sell it for $3. Thus, if we are truly bullish on this and we're willing to sell at higher prices, well, guess what? If this goes in the money, we make the difference between our $100 purchase and the $110 strike.

[00:07:07]So that's $10 or 10%. And then we also collect the premium if this goes in the money. Now, if this does not go in the money and Bitcoin is above $100 but below $110, then we just collect the premium. And if Bitcoin by expiration is below $100, then you know we have a little bit of a capital loss from the ownership of the stock. Our premium however will still expire worthless. So we'll continue to collect that. So you might be saying to yourself, well that's fine because I want to hold this stock anyways. And if I, you know, if I take like a $1 or $2 loss on the actual stock price, but I want to hold it anyways and I'm going to hold it anyways, then I might as well just collect that premium, which will help either offset that cost or actually still put me in the positive, and I still own that stock because I think it's going to go up later or whatever. So, your effective numbers here is your max gain is going to be $13. $13, which is 13% from your, you know, from from your initial price.

[00:08:09]quite a lot, especially if this is done like relatively soon, you know, within two weeks of expiration. Um, your break even is going to be $97. Why? Because you paid three or you sorry, you sold that premium for $3. So 100 minus 3 equals 97, that's your break even. Below 97, you will take capital losses on your stock or at least paper losses because you're, you know, you're holding that stock, it goes down to 97 or below, you technically have a paper loss. Um, but like I said, if you just want to hold that stock anyways because you're, you know, slightly or or or or maybe more long-term bullish on it, perhaps you're just cool with that to begin with. And who cares? You know, I'll sell that premium all day long and wait for the stock to go up later. Um, if you really do have that conviction. All right, so the three outcomes here kind of already went over these. Let me take a sip of this water.

[00:08:57]But, but it is this price stays below strike. What happens then? Well, you get to keep your premium. So, anything below 110, you sold that premium for $3, you're making $3. You're actually making $3 times 100, which is really $300. Um, if price goes above the strike, then your shares are called away. So, what does that mean? That means that you are going to again get the difference between your buy price of the stock at 100 and 110, which was a call strike sold, plus the $3 premium. So, you're making about 13% there as well. or price drops in which you still will collect that premium and you'll have a little bit of cushion on the downside for uh in this case $97 and then below there you will have paper losses by holding that stock. The premium lowers your cost basis basically if you want to be long that's a really powerful concept if you just want better entries as well.

[00:09:55]So let's talk uh risk here. Like I said your upside is capped. You are selling away the potential of unlimited upside.

[00:10:04]That can be an issue for some people.

[00:10:06]You are still exposed to downside. Yes, it cushions a little bit of it, but it doesn't truly protect it. So, if you really want to protect it, we need to employ other techniques. We'll save that one for the Crown Trading Bible. And then early assignment is possible.

[00:10:18]Doesn't really happen too often, but yeah, could be possible there. Be aware of these risks while assessing new opportunities as always. So, here's why professionals use it. Here's why I love it. You're basically monet monetizing time decay. You're letting time work for you. It's like my mentor used to relate it to me like this. Like I love to sit here in my seat and get paid to sit here from selling options. Like oh when you put it that way it sounds great. Redu uh of course it converts volatility into yield. It reduces portfolio drag and enhances your total return or can enhance your total return if done properly I should say.

[00:10:56]when not to use covered call. So if you are in a in an environment where a breakout's very very likely which is during what times typically when volatility is very very low you probably don't want to do this because you will be selling away that upside and you know if it's a breakout it really might run.

[00:11:12]So you you know you could be missing out on some real gains there. Um again just low implied volatility percentile. Again this is just basically low BBWP. We don't want to be [ __ ] sellers when volatility is like this. Don't sell options because they are cheap. You're selling cheap options and when price starts to move, those options can explode. If especially if it goes into the money, you're going to be in a lot of hurt there.

[00:11:39]And when you're expecting explosive upside, kind of the same thing as the beginning one. This just ties back to volatility regimes. Volatility again, the most major component of options. Be very aware of that. Anyways, covered calls is effectively volatility income strategy. It's not directional speculation. We're not trying to guess the direction. We're actually trying to capture a range more or less. We're trying to capture a range between the strike of the call sold and the premium sold for versus the the price of the stock bought minus the premium sold for.

[00:12:19]That is kind of our range of making money basically. I mean to the upside.

[00:12:23]You're still going to make money. You're just going to start to lose out, you know, once it goes deeper and deeper into the money. Anyway, so here's our summary. We are trading upside for income. This is best going to be done during periods of elevated volatility, you know, when something's found a major high or a major low. And we are effectively monetizing time decay.

[00:12:41]You're get you're getting paid to sit in your seat and [ __ ] twiddle your thumbs and masturbate.

[00:12:45]Use covered call strategically. This can blow up in your face if if the stock that you are owning has real downside of course but if you intend to own that stock anyways but just generally bullish on it you're not doing this on leverage for the actual stock portion then these are positions that you know you can hold and uh and if you're okay with the with the paper loss like you know that is up to you of course anyways we're going to expand upon this in the next video I'll see you in there take There.