{"id":23189,"date":"2025-11-23T04:17:56","date_gmt":"2025-11-23T04:17:56","guid":{"rendered":"https:\/\/finderica.com\/?p=23189"},"modified":"2025-11-23T04:17:56","modified_gmt":"2025-11-23T04:17:56","slug":"i-use-these-strategies-to-put-extra-cash-in-my-pocket","status":"publish","type":"post","link":"https:\/\/finderica.com\/?p=23189","title":{"rendered":"I Use These Strategies to Put Extra Cash in My Pocket"},"content":{"rendered":"
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Back in 1990, I was just out of college and fairly broke. I was living in a basement apartment with two roommates. It was a dump.<\/p>\n

At the end of each month, my meager paycheck was basically gone. I decided I needed to learn about the stock market to make some money.<\/p>\n

I read everything I could get my hands on. I spent many Saturdays at the New York Public Library absorbing as much as I could. (This was before the whole world was available on the internet.)<\/p>\n

Soon I started trading and investing in stocks. And then my mind was blown when I discovered options.<\/p>\n

Like most people, at first, I saw options as a shortcut to quick riches. Fortunately, I knew that I didn\u2019t know what I didn\u2019t know (ya know?), so I didn\u2019t start trading options until I had a better understanding of them.<\/p>\n

But even then, I was only buying puts and calls as speculations.<\/p>\n

A put is a bet that a stock will go down. A call is a bet that it will rise. These option contracts allow you to control 100 shares of stock for pennies on the dollar for a specific amount of time.<\/p>\n

For example, if you thought Bank of America<\/strong> (NYSE: BAC) was going higher in the short term, you could buy 100 shares for about $5,250. If the stock rose 10 points, you\u2019d make about $1,000.<\/p>\n

Or you could pay just $325 to buy a call that expires in March with a strike price of $52.50. That means if the stock is below $52.50 at expiration, your call expires worthless. If it\u2019s above $52.50, the call will have value, depending on how high the stock rises and how much time is left until expiration.<\/p>\n

If Bank of America shoots higher next week and is trading at $62.50, 10 points higher than it is today, your call would probably be worth around $1,100. So you\u2019d be up $775 on a $325 bet.<\/p>\n

If you\u2019d bought the stock, you\u2019d have risked $5,250 and made 19%. By buying the calls, you risked only $325 and made 238%.<\/p>\n

You can see why people speculate with options. You risk less and can make a much higher percentage return.<\/p>\n

But, as I dug deeper into options, I learned something stunning: The real money in options is in selling them, not speculating with them.<\/strong> When a speculator buys a put or a call, someone has to sell them that option \u2013 and they get paid to do so.<\/p>\n

Big financial institutions generally aren\u2019t trying to hit home runs buying calls on Nvidia<\/strong> (Nasdaq: NVDA) and taking on that risk, but they\u2019ll be happy to sell you some.<\/p>\n

The more I understood this, the more I wanted to sell options to generate income right away.<\/p>\n

Now that I\u2019m older, while I still like to swing for the fences once in a while, my priority for my investments is generating income.<\/p>\n

Over the past decade, I\u2019ve increasingly used options to generate income with various strategies, including (but not limited to) covered calls and naked puts.<\/p>\n

A covered call is when you own a stock and sell a call on it. In other words, someone is betting that the stock will go higher. When you sell the call to them, you get paid immediately. If the stock goes higher, you may have to sell your stock at the higher strike price, but you keep the money you got from selling the call.<\/p>\n

If the stock pays a dividend, you can also continue to collect those dividends while you wait, which further boosts your return.<\/p>\n

Then there are naked puts. When someone is worried about their stock going down \u2013 or speculating on a fall \u2013 they\u2019ll buy a put. If you sell them a naked put, you are agreeing to buy that stock from them if it reaches the strike price. (In options trading, \u201cnaked\u201d simply means you don\u2019t own the stock already. \u201cCovered,\u201d as in covered calls, means you do own the underlying stock.)<\/p>\n

Let\u2019s say you\u2019re interested in buying a stock, but only if you can get it at a 10% discount.<\/p>\n

You could sell puts on that stock with a strike price 10% below the current price. That means if the stock drops by 10%, you will likely get to buy 100 shares of the stock at your target price. You also got paid for selling the put, which lowers your effective cost even more.<\/p>\n

If the stock never drops to your target price, you still keep the money you received upfront when you sold the puts.<\/p>\n

I\u2019ve come a long way since spending my weekends in the library. The time was well spent, as I now have a number of ways to put extra cash in my pocket. Had I sold options 35 years ago, I could have gotten out of that dumpy apartment a lot quicker \u2013 and eaten a lot less ramen.<\/p>\n<\/p><\/div>\n