3 Trades to Generate $320/mo Selling Covered calls on Volatile Stocks

A couple of months ago I wrote an article - 3 Trades to Generate $250/mo Selling Covered calls on Dividend Stocks, concluding that we would need about $12,500 invested to achieve a 2.3% monthly return

Selling covered calls on these three dividend stocks right after buying them ($12,433) would generate about $287/mo. That's a 2.3% return in just 30 days or 27.6% per year.

Today we decided to check, is it possible to reach a similar result with less money invested.

Spoiler alert - it is possible, but the risk is much greater

This is not a trade recommendation, this is a trade idea. I'm not a financial advisor, anything written here should be taken with a grain of salt. I take no responsibility If you will decide to invest

Generate monthly income selling covered calls on AMC Entertainment Holdings Inc (AMC) stock

AMC stock price as of September 8, 2020

On September 8, 2020, you could buy 100 shares of AMC stock spending $658 and simultaneously sell out of the money October 9 expiry covered call a strike price of $7 for about $0.57. That gets you $57 and makes about 8.66% return in 31 day. Or about 101.92% annualized. Break-even: $6.01

If AMC stock closes below $7 on October 9, you keep the premium and start over. If the stock closes above $7, your stock gets called away, but check your break-even points.

There are several options you could use not to get shares called away, like a roll-up or roll forward. Or you could sell the stock, and start over by writing cash-secured put.

In case your stock gets called away at $7, remember you have made a premium + value gain. -$658+$700+$57= +$99. That would be about a 15.04% yield on your initial investment in 31 days. About 177.02% annualized. 

Remember, you are selling one contract, 100 shares of AMC stock, make sure you have 100 shares to sell if called away.

Generate monthly income selling covered calls on SmileDirectClub Inc (SDC) stock

SDC stock price as of September 8, 2020

On September 8, 2020, you could buy 100 shares of SDC stock spending $1,026 and simultaneously sell out of the money October 9 expiry covered call a strike price of $10.5 for about $0.79. That gets you $79 and makes about a 7.69% return in 31 days. Or about 90.51% annualized. Break-even: $9.47

If SDC stock closes below $10.5 on October 9, you keep the premium and start over. If the stock closes above $10.5, your stock gets called away, but check your break-even points.

There are several options you could use not to get shares called away, like a roll-up or roll forward. Or you could sell the stock, and start over by writing cash-secured put.

In case your stock gets called away at $10.5, remember you have made a premium + value gain. -$1,026+$1,050+$79= +$103. That would be about a 10.03% yield on your initial investment in 31 days. About 118.05% annualized. 

Remember, you are selling one contract, 100 shares of SDC stock, make sure you have 100 shares to sell if called away.

Generate monthly income selling covered calls on Virgin Galactic Holdings Inc (SPCE) stock

SPCE stock price as of September 8, 2020

On September 8, 2020, you could buy 100 shares of SPCE stock spending $1,801 and simultaneously sell out of the money October 9 expiry covered call a strike price of $18.5 for about $1.88. That gets you $188 and makes about a 10.43% return in 31 days. Or about 122.76% annualized. Break-even: $16.13

If SPCE stock closes below $18.5 on October 9, you keep the premium and start over. If the stock closes above $18.5, your stock gets called away, but check your break-even points.

There are several options you could use not to get shares called away, like a roll-up or roll forward. Or you could sell the stock, and start over by writing cash-secured put.

In case your stock gets called away at $18.5, remember you have made a premium + value gain. -$1,801+$1,850+$188= +$237. That would be about a 13.15% yield on your initial investment in 31 days. About 154.77% annualized. 

Remember, you are selling one contract, 100 shares of SPCE stock, make sure you have 100 shares to sell if called away.

Selling covered calls on these three volatile stocks right after buying them ($3,485) would generate about $324/mo. That's a 9.29% return in just 31 days or 109.34% per year.

Buying these three stocks comes with much higher risks when investing with blue-chip dividend stocks. These volatile stocks could drop significantly in price while you are holding. These trades are for traders with some risk appetite.

Here at OptionsBrew.com, we believe having a healthy mix with both blue chips and volatile biopharma or tech stocks is a risk we can take (at least sometimes)

And remember:

This is not a trade recommendation, this is a trade idea. I'm not a financial advisor, anything written here should be taken with a grain of salt. I take no responsibility If you will decide to invest