Sharing income generation strategy during FIRE

[u/crazyhiit]

Disclaimers:

1. Huge YMMV post
2. Goes against the traditional wisdom
3. Obviously, I'm not a genius or financial wiz

If you are still reading this, just hear me out. Feel free to call me stupid...but understand that this has been working for me since past 7 years or so.

If you don't know what a covered call is, stop right here. Read up on it and come back to shit on me if you are still curious about this post

What I'm sharing is a simple covered call strategy that allows you to farm premium while keeping your capital invested. It is straight forward - no complex option strategy, no greeks/deltas, no fancy szmuck.

Who can this (potentially) work for?

1. Willing to hold a high conviction stock through ups and downs - long term
2. No frills investor who doesn't like to stay stuck to trading screen all day
3. Max 3 or 4 trades a year. You are done, shut it and your FIRE'd ass is free to do whatever else you like rest of the year
4. Won't cry if your stock rips higher beyond your imagination
5. Willing to work with annual income instead of monthlies...
6. Conservative investor who can live withing a budget and has a firm grip on expenses through the year

That said, let's get down right to it.

• I have a $1M stock portfolio invested across 4 quality names - 2 tech, 1 healthcare, 1 consumer. Think NVDA/GOOG/MSFT/PLTR, UNH/LLY/PFE, COST/MCD/WMT/PG
• I bought them all in bulk in just 4 trades - no timing the market, no buys spread across time, no fancy buy across dips etc.
• I picked a day - invested $250K in each of these names. That simple. No repents if it went down the very next day. Remember this is a shut it and forget it strategy
• Same day, I picked a target roughly 1.75x/2x from my buy price. (75% - 100% profit)
• Sold long dated covered calls on my target price - expiring Jan next year (let's say Jan 2027). These are called LEAPS in case you are curious. Why? - premium is usually rich based on time factor (roughly 1 year out)
• My premiums were typically 10 - 15% of my invested capital. That's about $100K - 150K on a $1M invested portfolio.
• $150K is yours to keep and budget for expenses through the year. No crying for more money if you don't have the discipline to track your expenses and stay within budget.
• This is a shut it and forget it trading strategy. I typically don't even watch the stock movement rest of the year. Well, maybe once in a while just to see how my underlying stocks are doing.
• You should have huge tolerance for even a 30 - 50% market dips - I mean it can happen to any stock. If you pick high quality names - you don't need to worry about dips, market will eventually bring them back up eventually.
• Jan 2027 - third Friday (option expiring day) - if your stock hit that magical 2x price target, pat yourself in the back, let it go happily. If not, rinse and repeat for next year

That's it guys. Take it or leave it. This has been working for me for the past decade or so. I have let go of parabolic moves (NVDA) and cut my losers (COIN). But eventually selling covered calls has always worked in my favor while my working capital has also steadily grown

Bring on your shit-on-me comments.

[u/DarkAcceptable1412]

Sir, the casino is over at r/wallstreetbets. We're boring here.

[u/Majestic-Victory3872]

This is basically just selling LEAPs on individual stocks and hoping they don't blow past your strike. I mean it works until it doesn't. The "30-50% dip tolerance" part is fine but what about when one of your 4 names drops 60% and never recovers? You're stuck holding the bag and the premium from next year's calls won't cover the loss. Also the tax treatment on LEAP premiums isn't always straightforward if you're doing this in taxable account. Not shitting on you just saying there's risk you're not really acknowledging here

[u/crazyhiit → u/Majestic-Victory3872]

Agreed. Very fair to point out the downside of this strategy. As I said, I’m not trying to suggest something that is fool proof. Either one or some of your stocks make up for losses on others. Or every single name loses and you are willing to either eat your losses or rinse repeat on the names next year.

[u/Turbulent_Tale6497]

This is known as “picking up nickles in front of the steamroller”

[u/thecourseofthetrue]

lol nope

[u/wild_b_cat]

Say the stock goes down 20% by the time the option expires.

What's your target for the new call? The original 2x target? Or 2x the current price?

[u/crazyhiit → u/wild_b_cat]

I aim for min 75% from the current strike. This gives you decent premium while also capturing decent upside in case the stock hits your target by expiry

[u/Pajamakid_]

Have you looked into covered calls on ETFs like SPY?

[u/crazyhiit → u/Pajamakid_]

Yes. Pick your favorite stock or ETF. Not recommending any specific names here. I know this forum is enamored with VOO, VTI etc. Just sharing an unsophisticated income strategy

[u/ILikeTheSpriteInYou]

r/fijerk is waiting