[00:02] the extrinsic value and you will always get it. You can never not get it. So, we're up about 82% in 318 days. >> Today, we are diving into the dynamic poor man's covered call. A strategy
[00:17] designed to generate income while staying flexible in changing times. staying flexible in changing times. Let's break it down. Welcome, Tom King. here. >> Tom, give us the 40-seconds version of
[00:33] is. >> So, similar to a poor man's covered call it's a a diagonal call spread strategy. Uh it's going to involve uh buying a deep in the money leaps call or some sort of stock
[00:48] replacement leaps. Or we're going to be selling short-term calls against it, which sounds a very much like a standard poor man's covered call, but what I do and what makes this different is we're going to often be selling either at the
[01:00] money or we're going to be selling in the money covered calls, not just out of the money like most people are used to doing. So, it's going to change and be doing. So, it's going to change and be dynamic based on the regime and the uh
[01:12] trend of the stock. >> I look forward to digging into the details so of how you trade this. But, uh first, tell us a little bit about trader. >> Uh yeah, I've been trading for over 40
[01:28] some odd years now. So, I'm a little older, but uh really uh probably 40 45 older, but uh really uh probably 40 45 years on and off. Uh started uh in my in my teens trading a bit. Got into covered calls, jeez, way back uh in the '80s.
[01:43] That was kind of my first intro to options. I've tried a lot of different strategies out there. I've been buying calls, buying puts, selling calls, selling puts, covered calls. Uh all kinds of different strategies
[01:56] over the years. really trying to find something that uh really kind of fits my trading style. Uh so, I kind of bounced around and options, if you trade it long enough, you're going to have your ups and downs.
[02:10] Uh and I've had uh plenty of ups and plenty of downs where I've you know mainly early on where yeah, lost an account, build it back up, lost an account doing some crazy thing out there. I've spent
[02:23] I don't know, untold thousands and thousands of dollars, tens of thousands, probably well you know, not maybe 100,000 or so uh on courses and services and all kinds of things like that just to improve my
[02:36] trying to look for those types of trades that really resonate with me. And uh really for the last 10 years or so, I've really become a a premium seller. That's
[02:49] uh that's been my niche and I've gone out a little bit longer in time uh than most people. So, I trade a lot of 60, 90, even 120 uh DTE trades because I watch a screen all day. Uh and those longer trades typically uh
[03:07] implied volatility uh is going to be quite different at those than the actual uh volatility. So, it it really gives trade a little bit longer out because again that longer time frame
[03:21] the implied volatility is typically higher than the actual volatility that of an edge, I think, when you get out uh a little bit longer. I'm curious, where a little bit longer. I'm curious, where are you located and what do you love to
[03:34] trading options? Yeah, I uh I'm located in Cleveland, Ohio. And uh you know, an avid golfer, been an avid golfer for a long time. I coached a lot uh when my kids were growing up,
[03:48] coached a lot of soccer uh and uh and things like that. And then as a as my 9-to-5, which I no longer do much of, uh, I've really been a consultant on sales and marketing, and I'm a really an operational guy. So, I
[04:02] find that that really is helpful when it comes to, uh, at least options trading, because I'm really a firm believer in having a firm trading plan. I'm really a firm believer in a believer in treating trading like a business.
[04:16] So, you know, and because I've been as a business consultant for, uh, for a long uh, I think it it comes really pretty natural to me, but just like employees, if they're not producing, they have to go. Uh, if you've got, uh, businesses
[04:32] that aren't making a profit, you've got to, uh, restructure those businesses and make improvements where you can. And I think the same thing applies to trading. like a hobby, and they do what I did early on, too, and they're bouncing
[04:46] around looking for the holy grail or that trade that's going to make them, you know, make them rich over time. And really, what it is is put a business plan together, be consistent, find the strategies that make sense for you. And
[05:00] yourself, uh, a lot more successful. >> So, let's dig into the dynamic poor >> So, let's dig into the dynamic poor man's covered call. I would like to just start with a basic, and let's start with just summarizing the strategy, and also,
[05:15] what are you trying to achieve with this strategy? >> Uh, so, as I mentioned kind of early on, uh, here, it is similar to a standard poor man's covered call trade, uh, where we're going to buy some sort
[05:28] uh, where we're going to buy some sort of a synthetic stock type of a setup. Uh, you can either buy those, you know, 80 delta, you know, leaps like a lot of people do, 75, 80, 85 delta, something like that. I personally like, uh, the
[05:43] synthetic stock version, where I'm still going out that year or so out and buying the call, selling the put at the same at the money strike, which is basically a synthetic stock position, and then I'll buy a protective or a disaster put,
[05:58] which usually cuts the the the amount of capital down when you when you different ways of doing it. We can touch on on some of those, but instead of spending all of the money to buy the stock, even at
[06:12] margin, uh you can probably get the same amount for roughly 1/3, 1/4 of the cost. you're getting a lot of really good leverage on those leaps, and you get the
[06:25] convexity of those leaps that if a market's moving up or the stock is moving up, uh your leaps are going to move up, you know, two to three times, maybe four times that uh to the upside. The Conversely, if the market's moving
[06:38] down, you can really start to see your account dropping a little bit more four times uh that amount when you're buying those synthetic leap is the core foundational position, and then we're going to be
[06:52] selling calls roughly, I you know, one to two weeks out. You can do a month, depending on how active you want to be uh with the strategy. Uh but, I'll I'll step back before I jump into the call part, and
[07:08] I'm looking for quality stocks or ETFs. I really prefer I love stocks or ETFs. I really prefer I love trading SPY, SPX, uh ES futures, trading SPY, SPX, uh ES futures, uh QQQ, things like that. Uh I prefer
[07:23] those a lot more than individual stocks. Individual stocks come with so much uh potential problems and risk for me uh that I try to avoid stocks um whenever I can. It doesn't mean that
[07:36] I will never trade a stock, but I would really prefer to avoid stocks and trade ETFs cuz I've I've just I like the basket better than you know some CEO or CFO comes out says one want wrong word in a convention and the stock drops 10%
[07:53] or they come out with good earnings and then the guidance isn't what people thought and it drops 10%. I like to avoid that and just trade the indexes and ETFs but really it's a a personal preference of the trader.
[08:07] several times so I think we should just spend 10 seconds defining each of them and the the first is actually what is a poor man's covered call. essentially buying the instead of buying the stock
[08:23] you're buying a leap at a much cheaper price so the hence the word poor man you capital outlay to control 100 shares. Instead of buying 100 shares of Apple right now and Apple's trading at $260 so
[08:41] 100 shares of Apple's going to cost you $26,000. But you could potentially be buying the leaps for 5,000 or something like that leaps for 5,000 or something like that or or $6,000 so it's about 1/4
[08:54] of the cost so that makes it again the poor man part and then we're just selling covered calls against that position on a weekly basis. So for me and we'll talk about more but I'm going to be selling either
[09:07] at the money in the money and sometimes out of the money calls depending on what the market and the stock is doing. >> And I think we also need to define what a few times. >> Yeah. And leaps are
[09:22] longer term options. It's a options. It's a long-term equity anticipation contracts options that are 6 months to a year or more than a year
[09:37] out into the future. So, you're buying something a year out. Typically for me, I'm going to I'm going to go about 1 year out, but it really depends on the deal. Uh for me, I don't want to get too deep
[09:50] into strategies and things like that, but if we've we had a really great pullback and I find this uh the S&P, like last April, when we had the whole Liberation Day, you know, drop,
[10:03] now when it when I get a drop like that, well, now I want to go out more than a year, a year, 2 years. I want to go out as far as I can when you get a deal. If And then for the last 6 to 8 months,
[10:16] higher and higher. You're not getting deals, but on like small pullbacks, then maybe I'll go 6 to 8 months out cuz I'm not getting as good of a a deal, but we're still heading higher.
[10:30] >> So, I think it's time that we dig a bit deeper into the details of this strategy. And let's now assume that you are opening a new trade, and you have touched on some of it. What are your rules for for opening the long long
[10:45] position, you know, your underlying, days to expiration, et cetera. What are the criteria that that you have? >> Perfect. If I'm really quickly, if I'm I'm going to be looking for something that has strong revenue growth, strong
[10:59] earnings growth, good return on equity, uh a good solid moat, uh something out there. So, when I'm doing a stock, I want something that's really has a great growth rate, but I'm looking, even if I use an ETF, I would love to see an RSI
[11:13] use an ETF, I would love to see an RSI at least above 35 or or so. Uh I overbought territory, but it may be rising. It's trading above its 200-day moving average. It's hopefully maybe the eight is above the 21 exponential moving
[11:27] higher. But, if we can get a pullback to the 21 to 50 uh exponential moving averages, then that would be fantastic for me. And what I will do at that point is if I find that that's a good entry position, I will
[11:41] enter and we'll just for the sake of tonight use just a a deep in the money leap call. So, something around that 80 delta, 12 months out in into the future, and we're going to buy that call for
[11:57] that. >> And with 80 to 90 delta, it is behaving almost like a stock. >> Right. And and to grow as well. So, yeah, 80 to 90 delta, I
[12:13] think works well. Uh I don't really love the 70 delta and there's a lot of caveats here, but the 70 delta, which a lot of people do use as well, not enough long deltas for the type of trading that I do. So, I
[12:27] really want to have as long a delta for it to behave as close to a stock, and I want to see a stock that's going, you know, bottom left to upper right, could be sideways. You just don't want to be buying something that's in a
[12:39] downtrend. Uh it doesn't it it will still work, but I would prefer to have something that's that's uptrending and something that has a a good amount of delta to it. >> But you said that you often prefer to
[12:54] instead of buying the call to open a synthetic position instead. That's explain that a little bit. What do you >> Yeah. So, if I'm going to buy the synthetic stock position, again, that's
[13:09] buying an at-the-money call, selling an at-the-money put at the same, you know, at-the-money put at the same, you know, strikes at the same expiration out 1 year or what have you. By doing that, it's a little bit more of an aggressive
[13:21] position. Buying a buying an 80 delta call, you have a there's only so much you can lose. It's a defined risk trade because you can only lose as much as what you paid for that. If you're buying the
[13:35] synthetic, you know, buying the call, selling the the put at the same strike, well, now it's going to mirror actually owning the stock. There is no limit to your downside. And there's no limit to your upside either just like a stock. I
[13:48] mean, it can go until the stock goes to zero. I will typically use a buy a put about 20% out of the money in that same expiration just to cap the downside as a disaster
[14:04] point if something should go wrong. Typically is less costly than buying the LEAP and you can get a little bit more delta out of it, but it really makes it a very reasonably priced trade. >> But why do you prefer to go this
[14:18] synthetic way? >> Simply cost savings. So, it's going to be less expensive to do that than it is to actually buy the 80 delta call because you're getting paid for selling the put which is offsetting a lot of the
[14:31] cost that you paid to buy the call. So, those are cost even more. So, it's going to make it even leverage tool. What you have to be careful of is just because it's going to
[14:47] cost you less, don't buy three times as many shares. If you were only going to buy 100 shares or one contract, you should still only do one much. Don't over leverage yourself is that
[15:00] that the key for people. >> So, we have the long position in place. >> So, we have the long position in place. Most often you do it in an ETF or index as I and stand it and it's time to start selling the calls. So, please explain
[15:16] selling the calls. So, please explain the rules for selling the calls. >> The income engine part of this, you got the foundational trade, the leaps. Now you're going to generate that cash flow and I'm all about the extrinsic amount.
[15:31] call there's an amount of that that is time value and that time value is the extrinsic amount that you're going to get. If you're selling out of the money calls, they're all it's all extrinsic.
[15:45] But it's it's like a bell curve here that if you're out of the money, the extrinsic is very little. If you're at the money right in the middle, your extrinsic is going to be the most and then if you're in the money, again
[15:58] your extrinsic is going to be a lot less. But when you sell in the money, you're buying intrinsic as well which is protecting your downside. So if the markets are going lower and you're selling in the money calls, you're
[16:13] actually buying protection while still getting extrinsic value which to me in a market like this is beautiful. So it's really evening out is beautiful. So it's really evening out my deltas cuz I might buy a
[16:26] my deltas cuz I might buy a as an example on spy, I might sell an in the money call. Maybe it's $10 in the money or something along those lines where I'm still getting $270
[16:40] extrinsic but I'm also going to get on top of that about $15 you know or $10 of intrinsic. So you're you're buying some downside protection and that's really paid off
[16:55] well. And the nice thing about that is that's probably close to like a 70 60 70 that's probably close to like a 70 60 70 delta call potentially and if you have an 80 delta foundational position. I'm throwing a
[17:08] lot of stuff out here but then it's not a lot of long delta. So if some of the upside but if we're going down, you're you're still protecting your downside, and I love
[17:22] being Delta neutral. I want to be Delta neutral to just slightly Delta positive in my entire portfolio. So, all of my strategies work together to keep my portfolio just slightly Delta positive as a whole because markets
[17:35] drift higher over time, but not so Delta positive that when we have a sell-off day like today or like the market's been doing, I'm not really getting hit too much on those positions. >> But, what does sides whether you are in
[17:49] the money, at the money, slightly out of the money? You know, how do you decide >> Yeah. For me, simply, I'm looking at the 8 EMA and the 21 EMA. And for the most part, if the 8 EMA is
[18:05] above the 21 EMA and we're in a nice solid uptrend, then I might sell slightly out of the money. Okay, so we're out of the money, I want but I still want as much extrinsic as I can get. Ideally for me, I would like to
[18:19] can get. Ideally for me, I would like to get about 1% of extrinsic on the stock price. So, if I'm spot So, if spy is at $680 today
[18:32] So, if spy is at $680 today and I sold the 682 call, I'm actually going to get $6 of extrinsic value for that. So, it's almost 1% on the stock. Okay, but
[18:45] when you paid 1/3 of that price for the leaps, I'm technically now getting about leaps, I'm technically now getting about 3% a week on the extrinsic. 3% a week on the extrinsic. So, you can make about 3% of 3% a week
[18:58] on just the extrinsic value and you will always get it. You can never not get it. Every week you the extrinsic the time value will will go away. So, if the 8 is above the 21 and we're rising, I'll go slightly out of the money, maybe 20-30
[19:11] delta. Uh if the uh EMAs are fairly flat, uh give or take a little bit, I will stay at the money, which is right around that uh 50 delta or so, and then uh which is
[19:26] going to give you the max extrinsic uh amount. And then if we're in a downtrend where maybe the 8 EMA is falling below the is below the 21 or the price is below the 21, that's when I'll start to go in the money,
[19:40] maybe 60-70 delta, uh something along those lines. those lines. >> And these are in uh in your case about 1 >> Usually about 1 week out, depending on how much time you want to put in.
[19:53] >> When then do you manage this uh the calls you sell? Do you just let them expire or you roll them or what are your rules for how you manage them? >> Because you're selling calls that often can be going either starting or going in
[20:08] the money, uh you definitely don't want to be holding those on expirations cuz you risk assignment. The kind of the fallacy of people out calls, I'm going to get assigned. Well, that doesn't really happen. Um the only
[20:22] times you really get assigned on your calls are when you run out of ex- when there's no extrinsic value left and there's very little of any time left uh in the in the option. If there's extrinsic left,
[20:36] most of the time someone's not going to try to buy an option that still has time value in it. Um they want to buy it as cheaply as possible. Uh but that being said, I will typically close when I've gotten around 80 to 90%
[20:52] of the extrinsic value has come out of the trade. So as soon as I get a 80 to 90% of the extrinsic value out, I will then that's when I will roll. A couple caveats to that it would be
[21:06] let's say I get 70% of it out in the first couple days and I still have three or four days to go, and I'm at least at 70% of the extrinsic value, I will also roll early if I've captured 70% in less than half of the
[21:21] time, maybe in two days, by Tuesday or Wednesday, if I've got 70%, I'll get >> When is the latest you will roll if it's in the money? if there's extrinsic left, it'll be on typically that Friday expiration.
[21:36] Friday for the most part. So I'll roll the day of expiration. Sometimes, like QQQ is a good example. I've got a a QQQ one on right now and I'm looking up at the screen. The QQQ
[21:51] The QQQ call is in the money by almost $3 right now with one day to go. Tomorrow's Friday. Uh but it still has of the original $733 of extrinsic, it still has $222 of
[22:07] extrinsic left. Like QQQ and Spy, they love to hold on to the extrinsic. So I will wait until you know, a decent amount into the day. assigned during the day. Assignment happens by the options clearing
[22:24] a house. That's going to happen after the market's closed. Uh so day um and I'm not going to, you know, squeeze every little penny out of it, but uh if I have a decent amount of
[22:38] extrinsic left, I I will hold uh until that last day. Unless I'm super deep in the money and I'm worried about, you know, getting assigned or something. >> And then when you roll, you assess what strike price you want for the next week
[22:51] goal is to achieve 1% of extrinsic >> I would love to get that, you know, 0.75 to 1% of extrinsic value if I can.
[23:03] Uh but I will assess the trade based upon what's happening right now. So, if right now spy the eight is below the 21, the stock is below the 21. We're technically in a bearish regime uh on spy. So, if you're
[23:18] looking at a chart it's bearish. Okay? At least in the short term using the daily chart everything is everything is bearish. So, based on that, I would like to be at least a bit in the money on
[23:31] that. Uh the only caveat to rolling, so if I'm if I'm deep in the money, I'll roll up, but I'll stay in the money. If for some reason the stock has dropped way below and I'm no longer in the money uh on
[23:44] those calls, I got to buy it back, which I'm going to pay a decent debit. We're or that roll, um at least to buy back that particular option before we sell the next option a week out. Uh I may, if it's a
[23:59] significant gap between where I want to go and where I am, I may only roll half of the distance to avoid what I call the whipsaw uh effect there that if the stock dropped today and I sold and I went from out of the money because the
[24:14] stock had dropped all the way to in the money and then the stock bounces tomorrow, I'm going to be even deeper in the money uh and it's going to cost me a lot more to buy that back. So, I may split the difference and only roll
[24:27] partial. >> Do you ever adjust the long position you have or will that just stay the same throughout the duration of the trade? >> Normally, it'll stay the same for the duration of the trade. And this is a
[24:39] something that happens and I get out within a couple weeks or a couple Um if I can continue to keep making about 1% of extrinsic a week over 50 that's going to be 50%. Okay? And if the underlying goes up at
[24:55] all, then I'm also going to get some of that appreciation uh as well on the long and that's really where uh this trade can benefit. So, if we hit roughly about a 100% return uh on the overall trade, I'll look to
[25:08] get out or if the stock has risen you know, a a gigantic amount, uh I might look to sell because those gains are all unrealized on the longs and I might be buying calls
[25:23] back in the money. I'm spending cash each week, so I'm taking a loss on my covered calls, but the the leap continues to to climb at a faster pace because it's an 80 delta, 90 delta leap now and I'm selling
[25:38] a 50 delta call. So, I'm losing 50 cents, gaining a dollar, plus I'm getting the extrinsic. Uh so, I'm fine with that, but that's all unrealized gains on the long, so at some point you want to maybe cash those
[25:52] in so that you maintain that that all that positive cash that you generated. >> This is a long-term trade. You roll week after week after week. You touched a bit on it, but let's just be more
[26:05] systematic. What are the rules for when you actually close the trade, when the >> Typically again, if once I've gotten to a about a 100% uh on the on the overall position when everything is put in there, I will look
[26:20] to get out. I can close early if I get to about 50% profit or more in half of the time. If the leap plus the calls is all down about 30% from where I got in, so any of the money I'm making on the calls
[26:36] the money I'm making on the calls plus the losses on the leaps, if those combined is more than 30%, I'll look to exit the trade potentially at that point as well. >> How do you keep track of the trade?
[26:48] you need to to how much you have collected over time and your profit and loss at any time. How how do you do this in practical >> So, I have a trade tracker that I use for all of my trades. So, let's take a
[27:02] look at my uh trade tracker here and you'll get a a good sense of of how this is working. We can look at spy or QQQ. Let's just take a quick look at QQQ here uh because I don't have I haven't sold
[27:15] You see I I started buying it back in April. I bought one leap uh on this one for $13,000. And then down here I have tracked every week what I've sold the option for,
[27:31] what I bought it back for. You can see some weeks uh you're buying it back um for a credit. spending money because it's gone in the money. So,
[27:45] the key though is you're generating extrinsic value over time. So, over time I've actually I've actually uh I it's actually cost me $857
[27:58] total, which over you know, this has been going on for 318 days. So, the overall cost of the buying back all of these uh covered calls is about about you know, $900.
[28:13] The gain of the long has gone up about $26,000. So, when you take the original 13780, I I look at my adjusted cost basis, which spent to buy back the calls.
[28:29] is about 12 grand. So, we're up about 82% in 318 days uh on this. The stock itself is up 33%. So, if you were if you had bought the stock, you'd have made 33%
[28:44] stock, you'd have made 33% using this, I've I'm up 82% in 318 days. a lot of it again is because I'm generating extrinsic value. I'm also seeing that the longs are are appreciating uh at a at a
[28:59] you know, at a 33% clip, which is a decent uh here. And even though you've technically lost money on the calls, you're only losing money on the intrinsic value that you have to pay to
[29:14] buy it back, but you keep the extrinsic. There. So, it gives you a good sense of of what all that looks like over time. And I just you know, give you just a quick sense of what the the year looks like so far. Uh so, for January,
[29:29] you know, my total gain loss in the trade was about 10,000. Uh by the end of February, the total gain on this trade is a little over 11,000, uh which is about a $1,400 increase in the month. So, I just tracking how much
[29:43] uh of an increase I'm I do make on the trade. One thing I always get is, "Well, if you didn't sell the calls, Tom, you would be up way more." Well, that would be true if the market was always going straight up uh
[29:58] here. Yes, I would actually be ahead. Okay, by $900 uh if I didn't do this. However, because I've all or I I'd be up 13 whatever, the $13,000 here. But, I would not have had all of the
[30:14] extrinsic value continuing to pile into this account on a weekly basis. It's hard for people to comprehend. I'm losing money. No, you're really not because the underlying is go If you're
[30:28] buying a call back for a loss, that means it's gone in the money and your underlying continues to go up. And you want something that's going to go up over time. Um spy, same thing over here.
[30:42] It's actually cost me over $11,000 to buy back those calls, but I'm up over 103% while spy is up only 12% in that same time. Why? Because A,
[30:56] part of that is the underlying stock and the other part is all of that extrinsic value that keeps piling into your account every single week and I'm account every single week and I'm gaining about 1% to 3% uh worth of
[31:09] extrinsic every single week. This one's been on for 400 days, so this is just over a year now. And I'll probably likely close this soon. But what do you do when it really start going against you? But what what
[31:22] situation is that? So, if it starts to go against you, uh the goal here is sell in the money calls, which is going to protect your downside. I've done this twice on strategy as a trade. Uh so, strategy or
[31:37] uh has been nothing but a terrible stock heading down uh for most people, but for me, I've made 20% twice in less than 6 months on that stock because all I'm doing is while it's been
[31:53] So, I not only have protected my downside, but I also make extrinsic value. So, the intrinsic amount that I sell on the call,
[32:05] that protects the downside of the leap, plus I'm still getting all of that extrinsic value out of it. And because strategy has, week, you can take you can technically go in
[32:20] about $10 in the money on strategy and still be generating about $166 of extrinsic every single week. On a $130 stock,
[32:32] I'm generating $160 of extrinsic every week and buying $10 worth of protection. And if it, you know, if it drops $10, I get to keep all
[32:44] of that. So, it basically the leaps is not really the concern. everybody, is can I generate constant extrinsic value gains on a weekly basis? >> What is the worst that can happen with
[32:59] >> Uh worst that can happen in this strategy is you get a you get a stock that is bouncing up and down. So, one week you're in the money, then you go, you know, you're somewhere in
[33:13] the money and it rallies and you have to buy that, you know, back for a significant loss. And then you sell it out of the money and it drops. So, you didn't make enough money on the drop. So, you don't really want a stock that's
[33:26] going to yo-yo up and down. That's where, you know, that whipsaw really out of the money. And that's where or some of these things where you're selling your where they're always
[33:40] selling like 30 delta um calls. Well, 30 delta calls is great but it's not great when the market's falling, you know, on a consistent basis. If you're in you know, pick a stock out there right
[33:54] now. If you're in Palantir or Hood. So, if you were in the Hood and all you were doing is selling out of the money calls, you are not you're selling a a let's say a a 30 delta call, but your
[34:07] a let's say a a 30 delta call, but your 80 delta leaps are falling 10% okay, or $10. Okay, so an 80 delta leap falling $10 is going to fall $8 where to save you three, you're going to be losing more money every single week
[34:25] still going to help you cost basis a fraction, uh but you you want to be able to sell in the money, but if then if it rallies when you're in the money,
[34:37] and then the next week it falls, uh that's where you you know, that's where more difficult for you. >> Tom, I always ask my guests to rate the or to rank their strategy on a risk profile scale, where one is very low
[34:53] profile scale, where one is very low risk and 10 is very high risk. And well, you are free to define those numbers as you uh see fit. Where would you put this way of trading? >> I will put this trade, I'll put it at at
[35:07] a fairly low risk. I won't say it's zero or one, but cuz you know, anything that you're trading leveraged options on has has some risk on it, but because it's a very delta neutral type of a trade, and you can actually be
[35:22] delta negative when it's falling, you can be delta positive when it's rising, you're offsetting a lot of that risk that you would by just holding the stock that you would by just holding the stock that's falling, uh or selling calls
[35:36] on a in a rising uh environment, uh you're limiting it. So, I'm going to you know, I'd say probably about a three uh on a on a on a risk scale. Uh I've had some some things fall pretty good, uh like strategy,
[35:52] uh that's about the only one, but um strategy's down, you know, 20, 30% uh or so, but yet, you know, the I'm only down a couple thousand dollars, even though the the leap would be down $10,000, I'm only down two or three
[36:09] $10,000, I'm only down two or three uh on So, I've offset a good uh portion of my losses by selling in the money when something is falling. Uh so, I think that really keeps your portfolio uh balanced. And uh right now,
[36:23] I'm I'm having a great year. So, uh the year is going well, and I attribute a lot of that to especially in February when it was a little tougher for some people uh, because I'm very Delta neutral. I I don't I don't love risk. I
[36:37] do sell naked puts on some on trades and things like that, too. things like that, too. Uh, but I really limit the the the size of of what I do. But I think this strategy is is
[36:49] fairly low risk uh, out there if you're picking the right assets. >> What have been your results over time trading this strategy on different results? >> Yeah, as far as the overall
[37:05] results on the trades that I'm that I'm in, I'm averaging around 70 to 80% on in, I'm averaging around 70 to 80% on these trades over a year per per year. that's been in a good market or a sideways sideways market. We'll see if
[37:21] we end up in a a bear market here, but it's been a good trade uh, over time. It's not only I do, uh, but I think this these trades have been again about 70 to 80% over the course of about a 10 to 12
[37:36] >> And how do you measure it? >> Uh, based upon the initial outlay of capital and then when I close the entire trade out, uh, when I look at the again a little bit ago just looking at the entire uh,
[37:50] total gain or loss on the position. >> So, let's sum up. How how would this strategy suited best suited for and what would be your let's say two or three most important takeaways for our viewers to
[38:07] >> I think it's a trade that that suits almost any portfolio because it's dynamic. So, if you like if if you if you in a bullish market and you're selling out of the money calls just like a standard poor man's covered call works
[38:21] well. But you know, when you're in a neutral or a bull a bearish market, it allows you to adjust to the market that you're in and reduce your risk and increase your income at the same time and put a little
[38:36] So, I think it's a valuable position for any type of a portfolio, whether it's a trading portfolio or investment portfolio. I think it makes sense either way that you do it. And I think
[38:50] you've got to be careful on the the assets that you pick. I'm not picking super high risk assets here. I would prefer spy, QQQ for some of these. I also have I'm also trading it in gold right now.
[39:04] So, I think picking assets, commodities, what have you that are are single stock risk. I think it works in any portfolio right now. So, I think just being and I think having the mindset of
[39:21] don't just stick to one you know, this one strategy in any type of a market. You've got to understand the market that you're in and you have to adjust your strategy. You can't be someone who does the wheel trade
[39:35] in a in a in a downturn a 10 to 20% downturn. Okay, yes, you're going to get to be selling calls below your cost So, what do you do when the market's down 10, 20%? Are you still going to be
[39:49] doing the wheel? Are you still going to be selling naked puts? Or are you going to adjust and put on trades that make sense for the regime or the market that works in every market. >> And you got to keep a trade log. And you
[40:04] got you got to keep a trade log. You got to run you have to run your trading like Okay, this is serious stuff. I'm not, you know, you know, I'm my life's depending on it. My my income depends on it. Okay, I I run it like a business. I
[40:18] track every single trade. I look at every single trade on a weekly and every single trade on a weekly and monthly basis. I own the trades. I come up with different tweaks to strategies. I don't have the same strategies I had a
[40:30] year ago. They're similar, but there's little tweaks to that because hey, in a different environment you've got to adjust what you're doing and you have to really uh make sure that you're not just like the one-trick pony
[40:43] all the time. >> What would be good resources to learn more about this type of trading? >> Uh I I think you've got to make sure that you educate yourself on the Greeks, whatever that may take, whether it's
[40:58] watching YouTube videos or uh you know, joining a group or uh a subscription you. I mean, there are some great trading books out there. I think you you you really need to understand options, adjusting your options. You need to
[41:14] understand the Greeks. So, how does delta come into play on everything? How does Vega come into play? How does theta uh come into play on on what you're doing? And then you've also got to uh in my opinion, I think you need to be
[41:29] in a a a group that's going to help you. I don't care whose group it is or what it is, uh but uh I think being a lone wolf trader, and I've been there done that for years where I was trying to I didn't really
[41:42] improve what I was doing until I was in a group where I started posting all of feedback like well, why are you doing that? What are you do Why did you know, that was the greatest thing for me ever was when people
[41:56] that? Why did you know, it makes you think that why did I do that? Okay. Is your plan and uh I think that's the most important thing out there is educate yourself. Uh people will spend 80, 100,000 dollars to
[42:12] go to college for a degree that they probably can't even use or they'll be replaced by AI at some point maybe anyway, but but they won't spend any money. They won't even spend 50 bucks, 100 bucks, or whatever
[42:24] them a better trader and help take care of their families, and things like that. So, invest in yourself whatever way you have to do. >> Tom King, thank you very much for coming
[42:40] here and sharing your dynamic performance covered calls strategy and how you manage it. This was This was great. Thank you. >> It's fun. I appreciate Thanks very much for your time today.