[00:03] covered call allows us to use less upfront capital, generate more cash on cash percentage gain, and it's incredible. It's it's amplified my returns. I mean, I go from making on average 10,000 a week to now
[00:18] 30,000 a week. If you don't have cash flow in retirement, you're never going would. >> Most covered call traders buy the stocks >> Most covered call traders buy the stocks first, but not my guest today.
[00:32] He has his own way of trading and call it the 99 Delta in the money covered call. Welcome to John Greathouse. for having me on. >> Nice to have you here. So, let's get
[00:45] straight to it. Give us the 42nd version of your 99 Delta in the money covered call. What a name. >> Yes, I love it. It's a cash secured put
[00:57] >> Yes, I love it. It's a cash secured put alternative. It It uses a long call, a 99 Delta long call. Uh instead of buying the shares, so we're going to do an in the money covered call. A lot of people love the
[01:10] cash secured put. But, the cash secured put and the in the money covered call are inverse trades of themselves. A lot of upfront capital. The 99 Delta long call in the money covered call allows us to use less
[01:25] upfront capital, generate more cash on cash percentage gain, cash percentage gain, essentially the same risk once you learn the trade. >> And I really look forward to to hearing
[01:37] more about this. In fact, selling in the money covered call is one of my go-to strategies. Not exactly as you do it, but tell us first a little bit about yourself, especially as an options trader.
[01:51] >> I'll tell you what, 10 years ago, in fact, August of this year will be 10 full years that I started writing covered calls. I tried to day trade, swing trade. I'd watch all I'd watch videos like yourself, try to learn all
[02:05] the the high-level charting, trading. I just wasn't good, and there was a certain point where I realized that. But, I had a mentor, my buddy Jerry. He was generating his income in retirement
[02:20] with covered calls, and we would talk. We had fun. He was my stock market soulmate. We met at the gym. We would talk for hours. talk for hours. Jerry showed me how he would use great
[02:34] companies like Chevron, Exxon, and he would write covered calls and make income. Jerry was the one that helped me, and once I learned it, it changed my life. I don't trade any other way. Fast forward
[02:49] to 10 years later, we are literally putting on I'm putting we are literally putting on I'm putting on easily 51 trades a month. What I try to do is bring it down to the most basic straight talk style.
[03:04] And here's the deal. 10 years later, 10 years later, I have mastered the covered call, the cash secured put, the poor man's covered call, and now just a little variation off the in-the-money covered call trade.
[03:19] We're now doing the 99 delta. And it's not It's not that far of a reach from doing a cash secured put, doing an in-the-money covered call where you buy the shares, now the 99 delta. So, that is my
[03:33] going strong. >> And we are really going to get into the details of how you do this, but very briefly, what are you trying to achieve with the 99 delta in-the-money covered call?
[03:48] >> I'm trying to achieve cash flow because in retirement, which I did retire at 55, I'm now 58, I need cash flow. This is These are things that I've learned that you need cash flow. If you don't have cash flow in retirement, you're never
[04:03] going to live the life you ever thought you would. Now, that's what I'm looking to achieve. But I love the cash secured put. I love the in-the-money covered call. There's reasons I use one or the other.
[04:18] But since March of this year, I realized that a lot of my favorite ETFs, that a lot of my favorite ETFs, they've gotten to 100, 200, 300 dollars. they've gotten to 100, 200, 300 dollars. And to lay out for a thousand shares,
[04:32] I mean, LABU, for example, is one I love. It's trading for 300. How am I going to lay out 300,000 on one trade? So, when I was looking to dollar cost average,
[04:45] I found the 99 delta. And and and right at that point, it it And and and right at that point, it it hit me. I can use a synthetic trade using a long call option, right? The 99 delta.
[04:57] We could do it in such a way where we can write an in-the-money That's the key. >> And uh John, we we are going to go through an example trade in detail as we discuss entry mechanics, exit mechanics,
[05:12] how you manage this trade. But at this stage, I just want to maybe show very quickly in option strategy um this example trade. Just Just so we very And this is the trade we're going to discuss today on that you set up on TNA,
[05:30] right? Where you have bought uh one uh long uh one call, and you have sold one. Just explain in 30 seconds uh what this trade is. >> So, this is TNA, the 3x leveraged ETF to
[05:45] to Russell 2000. What we're doing is we're using TNA to then sell an in-the-money covered call. Now, we have some three key elements to set that trade up, but with a leveraged ETF like TNA,
[06:00] we can select a strike price for which we're going to give away our shares but if you understand what an in-the-money covered call is, where the call buyer who buys that 67 strike pays me the
[06:15] intrinsic value. Now, we don't make any money, and nor does that person. But, it's that 67 strike is what we're using for the trade. How we structure it, cash-secured put, in-the-money, or the 99 delta,
[06:31] in-the-money, or the 99 delta, the key is we're using the 67 strike. the key is we're using the 67 strike. TNA's trading for in and around 71.82. We give ourselves the downside protection to 67, and we still collect
[06:44] our 1.2% cash on cash for this trade. >> And how is this just basically making the profit? >> The profit is the premium we collect. The premium we collect is the entire
[07:02] profit here. We do not profit a nickel over 67. Remember, it's an in-the-money covered call, so we're giving away our shares at the strike price. It's
[07:14] currently trading at 71.70. We're giving them away at 67. We make no upside. It's all about the premium. The premium is the cash flow that I collect.
[07:26] That's the cash flow I use to fund my retirement. This trade is all about collecting the premium only. premium only. So, if TNA goes from 71.70
[07:39] to 79.70, I collect no upside. I collect the entire premium and that trade is a successful trade
[07:51] and that trade is a successful trade because I wanted to get out of the trade in 1 week. And in this case, I will have made 1.2 to 1.5% cash on cash.
[08:03] And I'll tell you what, by every single measure on Wall Street, that is a successful trade. >> And I guess we can say this is pure theta play, basically. It is the theta decay that you make the money on.
[08:18] decay that you make the money on. >> Absolutely, 100%. That is the cash flow. It's the guaranteed cash flow, actually. Where the trade goes from after we place it, we're going to manage the trade, but that upfront cash flow is ours and we
[08:33] >> John, before we get into the details, some traders would say, "But isn't this covered call?" >> The poor man's covered call is a little >> The poor man's covered call is a little bit different and it is different. The
[08:47] reason it's different, and I have a I have an example. When you use the poor man's covered call in its very traditional, you have to buy a LEAPS call option. A LEAPS call option is a long-dated call
[09:00] option. A lot of people like the 1-year. We're going to pay the covered call writer. Remember, the LEAPS call option, there's a covered call writer. He owns the shares. He's selling a call option
[09:13] to you. So, he has to make some covered call premium. writer 1 full year, you're paying that person a lot of time value premium. That's the cost in the
[09:29] I'm going to show you the example. call when you use a one-year LEAPS call option. The reason is when we do the 99 delta, we're working
[09:43] on hair-thin premium profits. We're not talking about making $10 a share. We're talking $0.80, $0.90 to a dollar. The example I'm going to show you makes $1.15.
[09:59] The TNA LEAPS call option I'm about to show you would have cost you more than what we make in premium. So, here's the distinction. With my 99 delta trade, you can do in-the-money covered calls that simulate
[10:14] stock ownership. It's a cash-secured put alternative. We're using the same strike, same expiration. We're using less upfront capital, and there's the trade. So, the poor
[10:26] man's covered call operates differently because of the cost of the LEAPS. >> Let me interrupt with a quick tip if you like trading earnings. Earnings trades are some of the most exciting
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[11:26] first month. You find the discount link below or in All right. Back to the interview. All right. So, very heavy selling here, John, for your 99 Delta strategy. So, I
[11:43] think it's time we really get into the details. And let's start with the entry mechanics. And I would like to start with how do you choose your underlines for this strategy? What are the criteria or the conditions that must be in place
[11:58] for an underlying to be underlying to be considered? >> So, I have a I have a great chart to show you of the TNA trade that I did. This is a great opportunity to show you the three key elements I use for every
[12:12] single trade, regardless of any trade I get into. So, it always starts with that very first question you ask. We want stock or ETF selection. Any guidelines, the golden guidelines to
[12:28] cover call writing or cash-secured put selling, starts with number one. You selling, starts with number one. You must want to own it. So, stock selection or ETF selection is very important. I only use indexes and sectors and the Mag
[12:42] 7. And rarely do I use a single stock. Why? Because we don't have to vet these things, right? I mean, TNA is the Russell 2000. They've already done that. So, really, what we're looking to use is TNA, the
[12:57] Russell 2000. We want to find a favorable entry with TNA because we know TNA being a leveraged ETF to the Russell 2000, it's going to ebb and flow. It's going
[13:10] to trade in ranges. >> How much leverage is TNA? Just so we have that clear. >> Yeah, TNA is a 3x leveraged ETF to the >> Yeah, TNA is a 3x leveraged ETF to the Russell 2000, the IWM. And And it's very
[13:23] important to understand what the underlying is. The underlying is the Russell 2000. So, volatility So, volatility usually spooks people, scares people.
[13:35] A lot of times when I mention to people that I trade TNA and and TQQQ and UPRO, that I trade TNA and and TQQQ and UPRO, which are the Russell, Nasdaq, and the S&P, uh they'll tell me it's too risky. Yet, they'll trade the spy. I'll trade
[13:51] UPRO. They'll trade QQQ, but I'll trade TQ's. TQ's. So, understand, TNA is a leveraged ETF to the Russell 2000. So, right off the bat, I feel very comfortable with this
[14:03] bat, I feel very comfortable with this because I'm using the Russell 2000. So, when we make that selection, we're already in. Now it Now we're talking about favorable entry and then giving ourselves downside
[14:17] the three key elements to every single trade uh that I I do when I start a covered call campaign. >> You are mentioning here in your entry
[14:29] that you are using the Keltner Channel mid. What is the Keltner Channel? >> So, in this example, you're actually looking at the Keltner Channel. It's the looking at the Keltner Channel. It's the only indicator I use. And basically, the
[14:44] Keltner Channel just shows a trend. What we're doing when we write a covered call and sell a cash-secured put, we're selling time. That's it. So, what we want to do is see a stock's
[14:57] trend. We want to see their trading range over time. This Keltner Channel you're looking at on TNA right now is a 3-month window. I use the defaults. A lot of people ask me what defaults. I use the defaults because all I need to
[15:11] do is see the range. >> And you want this in the along the >> Exactly. So, you see the top line, mid line, bottom line. But here's the deal. This is the snapshot of right here,
[15:24] And TNA, right here right now, is trading between the counter channel top and the mid. And over the past three entries, May, they sold it off to the mid, rallied it
[15:40] to the top, back to the mid, and here we are again. Went to the top, back to the mid. These are the entry points we want. This is where Wall Street comes back after profit taking. This is my belief. Okay, so you have
[15:54] chosen your outline, you have decided that now is a good time to entry, and as I understand, it the next step in your process now is to decide which short you are going to sell.
[16:10] Take us through that process. So, with with TNA in the in the example I just showed you, when it was trading at 7060, uh we're going to go ahead and pick a strike price
[16:25] for which is in the money, and it gives me 1.2 to 1.5%. Typically, typically, that's about a 20 delta strike. Now, I trade based on cash on cash
[16:40] percentage gain. I pick my strike prices based on the money I want to make. about cash flow. To me, there's no context when I tell you that I trade the 20 delta. But, if I tell you that I put cash to
[16:55] and I make 1.2% every single week, it. Because we have to commit, right? At some point, we have to put money to work. So, for me, over my experience
[17:07] over 10 years, in this example I'm showing you, showing you, the downside protection for TNA at 67, because this is the trade I'm going to show you. The 67 strike gives me that
[17:19] downside protection and it pays me the 1.2% cash on cash for the one week time frame. >> So you have the goal of making 1.2% or
[17:31] more, I guess, per a week with this uh trade. So maybe you can show us the example. >> Absolutely. I just happen to have it up >> [laughter] >> So this is the TNA trade I actually
[17:45] executed yesterday. So TNA's trading for 7044. Actually it's trading for 7060 when I placed the trade. You can see in the yellow cells we have it trading at 7060. We're going
[18:00] to put in the 67 strike. Now again, that's based on the favorable entry on the chart I showed you. price as our premium because we're going to
[18:14] as our premium because we're going to work the mid. Meaning, we're going to try to sell the mid or above. Right? We want to We want to collect as much premium as we can based on where the stock's trading.
[18:27] Now in this case I did 2,000 shares and you can see the expiration date being one week away. So let's break down those numbers. We have total premium in this trade when it's trading at 7060 the 67 strike. I'm
[18:42] giving them away cheaper. The covered call seller has to the covered call buyer has to pay me the intrinsic value. So you can see $4.75 is intrinsic value. So you can see $4.75 is the total premium I collected. $3.60
[18:57] is the intrinsic value. That's just the difference between where it's trading, difference between where it's trading, 7060, and 67. Nobody makes profit. But there's the time value premium I was talking about. The $1.15.
[19:11] And when you take $1.15 and divide that by the current and divide that by the current stock price, that's going to equal 1.63% for the time frame. And there's my cash on cash money profit
[19:25] in this trade, 2,300. Now, notice below, I did include the numbers below. These numbers are based on if you bought
[19:38] the shares. This is the traditional in the money covered call. I would have to the money covered call. I would have to invest for 2,000 shares at this point, invest for 2,000 shares at this point, $141,200.
[19:51] you, we only invest 81,400. Now, real quick, the downside protection, there's three key elements. The third important element is downside protection. I give myself 5.1%
[20:06] of downside protection. TNA has to fall from 76 to 67 before my strike price is >> So, your downside protection, just to be clear, is the difference between the
[20:18] strike price and the current stock price as you open the trade. >> Absolutely, because the call buyer pays me the intrinsic value up front. I keep that. Again, not profit, but I keep that. If
[20:32] Again, not profit, but I keep that. If this trade were to continue down below this trade were to continue down below 67 and I have to keep this position on, 67.
[20:44] >> All right. That's the setup of the shorts, which you in this case have sold shorts, which you in this case have sold at 67 strikes one week ahead. you cannot sell it before you have a bought a long, I guess. And so, tell us
[20:59] take us similarly through the process of setting up your long, your 99 delta >> So, this is that more advanced part. It It's It's rather easy once you learn it, okay? What we're going to do is buy
[21:15] a 99 delta long call. Now, you mentioned the poor man's covered call earlier, and I think a lot of people would instantly think to buy the one-year leaps, maybe a six-month leap.
[21:27] We're not doing that. What we're doing is picking a three-week to four-week is picking a three-week to four-week 99 delta delta 99 delta deepest in the money call option. Now, the reason we want to go deepest in
[21:42] the money is so we get the 99 effect. Remember, the 99 delta moves 99% of a $1 move in the stock. So, this allows us to do the in-the-money covered call.
[21:56] So, setting up this trade. We're going to purchase the 99 delta at this point. We have to have this first. Then, we commit our self to giving our shares away at 67. So, the 99 delta, when it's trading at 60 70 60, we're
[22:14] picking that August 7th expiration. That's only going to be about three to four weeks, and that's what we want, cuz we're going to do weekly covered calls if we're keeping this position open until August 7th. We're
[22:29] hoping to get out of the trade in one week, but hey, if we have to keep it, we We're going to pick the deepest in the money. That's going to be 30 That's going to be the 30 strike. We're going to pay $40.70.
[22:42] Now, you have to understand we have to negotiate the bid. And you have to negotiate it quite a bit because 99 delta deep in the money call don't have much open interest. This is one of the criticisms.
[22:58] considerably wide, but don't let that deter you because every time you submit a bid, the market maker is obligated to refresh the bid-ask spreads. And what you'll see is if you try to buy this, like I did,
[23:14] for 4070, chances are you might not get it on your first try. So, what you want to do is keep trying. Try to pay as less as possible. Because now take a look. The combined price of
[23:28] now take a look. The combined price of TNA when I executed this trade is 7070. Now, that's only 10 cents in time value premium. That's only 0.25%. I buy 20 contracts. So, this is where the math works.
[23:45] covered call now. Take a look at the 99 delta time value cost. It's only a dime. Because we're using TNA, a leveraged ETF, we make more premium. We make much
[23:59] more premium. So, we make $1.15 on that in-the-money covered call we just talked about. I like to subtract my time value premium out of this 99 delta, so I get a
[24:14] reflection of exactly what I make. That's going to be $1.05 based on the cash, remember I only invested 81,000 versus the 140,000 that
[24:26] somebody would have invested had they bought the shares, I make 2.58% cash on cash percentage gain. And look at my cash on cash. It's 2300.
[24:40] I actually make less because I have to pay for the 99 delta, but I actually make almost double the cash on cash percentage gain.
[24:54] after you have established this, we have this trade that we showed in uh in option strategy straight before and we can bring it back in just for a short refresher. You are in this position now where the market market is well
[25:10] currently is a bit higher than when you open open your trade. But this is this is how the situation look as long as you are above 67, I guess you
[25:22] will keep all the premium. And you only get into negative territory if the get into negative territory if the strike price falls below 67. Is that correctly understood? >> You're 100% correctly understood.
[25:35] >> Oh, I love to be 100% correct. >> You're always correct. >> No, absolutely not and it's a lot of numbers here to keep keep track. Just one question, you know, because some people may struggle a bit to understand
[25:49] that and let's try to clarify that very quickly because you are selling in the money and most people trading in either poor man's covered call or covered call, they are selling out of the money
[26:02] selling this the call above where the current price are. You are selling below which actually means that chances are that you're you know you know you know your shares or your long call will be taken away.
[26:15] So why very quickly in the money instead of out of the money? >> Like I mentioned earlier, this is a this is my cash secured put alternative A lot of people will use the out of the money cash secured put. They don't want
[26:30] to be assigned the shares for the most part. All they want to do is collect the Well, the inverse trade of that is the in the money covered call where you buy and you're giving them away at the same strike price that the cash secured put
[26:45] trader would have selected. So it's really the inverse of a cash secured put. Here's the deal. I'm all about cash flow from the premium I collect. This is why this is why I do the in-the-money
[26:59] covered call. It gives myself downside protection in the trade, and I can make I can generate the the incredible weekly cash-on-cash percentage gains. And if I do this every single week, it
[27:15] becomes a very repeatable favorable And that's what I've experienced over the years. I look [snorts] at it like this. I believe I'm never that lucky. I'm
[27:29] never that good to pick a stock and it goes higher. trade. Give myself downside protection. Almost anticipate the stock is going to fall. And I'm okay with that. Understand,
[27:44] because I know there's viewers right now saying, "John, why don't you just sell a put? Why don't you sell a put if you're so confident it's going to fall?" Look, I have no crystal ball and nor do you. What I want to do, I want to have these
[27:56] consistent trades for which I can bank, for the trades for which I can bank, for the most part, on my skill, my experience, and making sure that I clear the noise in the trade. We don't have all these
[28:11] different ways to figure out a trade. I think it's pretty clear that I keep it so we can have a favorable trade. And the in-the-money covered call gives us that. >> All right. We have opened the trade, and
[28:25] I'm curious, what do you do for exiting it? When do out of the trade? Because the shorts will expire in a week, or it will, you know, it will hit its expiry date. So, what what are your
[28:39] rules for getting out both with the shorts and the long? >> Okay, so let's let's now exit the trade. So, you already know the trade that we did, which by the way is a live trade. So, I have an example here of of a trade
[28:54] that's very similar using TNA. This is a closed trade, but this is how we need to exit this trade. We talked about how we entered it by running the numbers for our in-the-money covered call, then buying the 99 delta,
[29:09] then executing the in-the-money covered call. That trade This one would be a closed trade. So, we're going to go ahead and close this to do
[29:22] is run our numbers through the buyback calculator. Any buyback calculator you have, what has happened here is TNA is traded above our strike price of 67. Now, in this example, it's a little
[29:35] different, so bear with me on the numbers. This is an actual closed trade, but you get the idea. Here's the deal. TNA is trading for $76. This is well above our strike price. So, now what we need to do is determine
[29:51] how much time value is left in our option. Remember that $1.15 that I made in the option when we placed this trade? Well, what's happening now is the theta in that option is decreasing.
[30:07] So, with the stock now on the final day, time decay is eroding that premium. So, we're able to buy it We're going to give away just a little bit of time value premium,
[30:20] and that's what this calculator shows me. When the stock's trading at 76, me. When the stock's trading at 76, the real-time option price is $6.10. My strike price in this example is $70, so you could see there's $6 of intrinsic
[30:36] in the current option, which means there's only 10 cents in time value premium. So, here is how I like to close these When this is now
[30:51] this back for a dime or less, we do it. Why do we do that? Because remember, we sell time. And if I could close this on a Friday morning giving back a dime of my $1.15,
[31:07] I have a full trading day to then sell time for the next week. And generally, I can make three times that dime. >> So, this operation you do on typically on the last day, I guess, of the the day
[31:21] of expiry. So, I would guess this is when you can buy it back for the dime in time value, right? >> Absolutely. And in this case, the stock is has actually has actually moved higher. It's trading for 76. Uh the
[31:37] strike price is 70. So, you know how I like to do my in-the-money trades. This is clearly trading above the 70 strike. And we can now start to think about buying this back. And this usually happens on the Thursday or Friday.
[31:51] And definitely on Friday. So, we can close this trade giving back Which means I don't make a buck 15, I make a buck 05.
[32:03] But that's okay. Because I'm now going to do another in-the-money covered call having one full extra day on this side of the week to sell premium or sell time for next week. So, that's how I close the near-term
[32:18] And then, of course, below it, the three arrows below it, you could see I'm going arrows below it, you could see I'm going to try to close my 99 delta. to try to close my 99 delta. Because remember, I I close both legs of
[32:32] the trade when it's profitable. I don't I don't look to carry this trade on. I close it. It's one and done. Unless the stock fell below my strike, and then I'm forced to keep the trade or the position open. So, what I try to do
[32:48] is get out exactly where I did my buyback, and that's going to be 76. So, notice notice I sold notice I sold the long-dated 99 delta for 46. When you
[33:02] combine the 46 that I bought I sold it for for with what I paid for, that equals $76. We can move on. >> So, you are not rolling the long or
[33:18] reusing it, because you could reuse it for another week, right? >> I absolutely could. Uh I look at this, like I mentioned earlier, as a cash-secured put alternative. And the 99 delta supports
[33:31] alternative. And the 99 delta supports the trade just like cash supports a cash-secured put. So, for me, I will look to close both legs of these trades, and then I'm out of it. One and done. But, if you would like to continue this
[33:45] trade, I Clearly, I could. But, what I like to do is keep my get in the trade, get out of the trade, then we move on. Because here's the deal. TNA may have changed. It may have traded
[34:00] out of the range, and it may have put me at risk. Remember when I showed you the chart, the more favorable trade was when it was at 70. Now, in this example, TNA is trading for 76. See, when I buy this option back,
[34:15] I'm adding all that cost basis. Right? I'm paying $6 to buy this option Right? I'm paying $6 to buy this option back. I'm buying that intrinsic value back. I don't want to do that, because TNA
[34:29] could, hypothetically, go from 76 back to 70 and I'm underwater in the trade. my three key elements are very important. And the number two is most
[34:42] And that's what I was talking about earlier when I used that example of the calendar channel mid. >> Okay, so you have explained your entry and your exit point which is typically on the day of expiry and you're out of
[34:57] on the day of expiry and you're out of the trade. But what of these days in between? Do you ever do any kind of management of the position? And if so, in what situations would that be and what would you do?
[35:10] what would you do? >> So for the most part if we have a favorable entry and again, remember what I mentioned earlier about fading a trade I expect that it could fall to my strike
[35:22] I expect that it could fall to my strike price of 67 in that example. Uh I'll tell you, I let the trade percolate. I call it percolating. And I sold time.
[35:36] I have patience. I have built-in patience in this trade. It's a full patience in this trade. It's a full week, so we're going to let it play out. What typically happens in my experience
[35:48] because we entered this trade considerably lower considerably lower the selling has already happened in the stock or ETF. So there's a more favorable chance for it to go higher. So
[36:01] so typically this trade will stay in the money which means my option will always have time value premium. So I'm going to have to wait until the final three days before I start thinking about buying
[36:17] So I could manage this earlier because I'll give you an example, if TNA were to rip higher from 70 to 80 which in this market it could, well, of course, it's moving away from
[36:31] the 67 strike. So, what's happening is um that time value premium is sinking. I come in on a Tuesday and can buy that option back for the same dime. It's all
[36:44] about timing. So, managing the trade, now, I usually let it percolate for a week. I have some 13 to 20 trades on. I have enough work to keep me busy. But uh to close the trade, I usually
[36:58] to start really looking to buy back with that calculator Wednesday, Thursday, >> But John, if we look at at the risk profile in in our example's trade in options strat, you know, we see that, you know,
[37:13] everything is good and fine as long as we're above that strike price at 67 in our case. But, you know, what if the what if TNA's during that week suddenly drops a lot, get down to 50 or 60 or, you know, it's a leveraged ETF? What
[37:29] then? Because then you're in a big minus, we see from this graph on on on the trade. What do you do when you get into that situation? >> Okay, so that's a great question because that is kind of the worst case scenario.
[37:44] because a lot of people can't connect the dots the shares. For whatever reason this 99 delta just really overwhelms people.
[37:57] So, here's the worst case scenario. Well, let's talk about the most Well, let's talk about the most practical situation. The most practical practical situation. The most practical would be that TNA falls below 67.
[38:09] Now, what we're hoping for is it only falls in and around 67 because 67 is my cost basis. But, let's say it falls to 50. Remember, I bought the 99 delta. So, I basically own the same risk as
[38:24] somebody that bought the shares. Right? My 99 delta call option falls 99% Right? My 99 delta call option falls 99% of a $1 move. TNA falls from 70 to 50, your shares fell $20. My 99 delta fell basically $20. We own
[38:41] the same risk. Some people would debate that, but that's that's the basics. From a From a percentage standpoint, you haven't lost as much. I've lost a lot. Remember, I bought the 30 strike.
[38:56] So, So, what happens in that worst-case scenario to 50? Well, we're in trouble. And just like the person that bought the shares or did the cash-secured put, you only have a few decisions to make.
[39:10] here. So, So, you either stay in the position, you either stay in the position, you buy back the option, take the loss, or you sit on the trade. Now, here's what I want to emphasize.
[39:26] If you're using single stocks, we won't mention any, but say they're a little You don't know if that's going to come back. I don't know if markets come back, but for the most part, if I had to place my
[39:38] bet, TNA's going to come back. It has. In fact, TNA traded as low as 14 during the 2025 crash. I had a cost basis of 35. John, at that point, we're all sitting
[39:53] on our hands. We probably had all of our cash in the market. There's really no protection unless you buy protective puts. Well, John, I'm not that good, okay? So, I do what I do. I give myself downside
[40:09] protection, and I hope that's the protective net for me. But, the worst-case scenario is we're in trouble. What we're hoping for is that in this sideways to sideways to higher market,
[40:25] we're able to use the trading range, give ourselves downside protection, and get out of the trade profitable. Let me add one thing. Let me add one very important thing. I close my trades manually. Because
[40:38] here's the deal. You don't want to be assigned. You could be assigned, right? You've sold the 67 strike. The market maker is obligated to take your shares. That's a number one question I know people are going to have.
[40:52] John, you don't own the shares. So, where do you give the share? The market maker places you short the stock, the 67 strike. So, you need to manage this trade. You will wake up Monday morning,
[41:06] hypothetically, you've let this go to the market maker. The market maker takes your shares you don't have, places you short the stock at 67. What you need to do at that point, you close the short position,
[41:20] and you have to sell your 99 delta the short buyback. So, if I bought this back hypothetically for say $70, the buyback for the short was at $70,
[41:36] I have to sell my 99 delta where the price and the strike equals 70. All the numbers match up. >> And this has led us into the discussion about uh risks. You already said that the worst-case uh situation uh is if the
[41:52] market, you know, falls a lot. But, there is another risk factor here, isn't it? Because you are uh you are regularly trading leveraged ETFs, and they have much let's say bigger moves than an ETF that's not
[42:07] risk? >> Let me Let me mention something before. I I know many of your viewers are going to to mention this. The real risk, the the Let's say the
[42:24] absolute risk is that TNA trades below my strike price. See, if TNA trades below my strike price, my option goes to zero. Zero. So, remember I bought the 30 strike. So,
[42:38] if TNA goes from 70 to 30 to 29.99 the protection that I bought in the 30 strike, what's gone. So, the way you the way you manage that is
[42:53] you would have to buy another 99 delta at that price. But But that's the worst worst of the worst. You absolutely uh do not want TNA to trade below your strike price. But let's talk And And look, that can
[43:08] happen. Absolutely can happen. We know TNA sold from 35 down to 14. I would have probably bought the 14 strike in that 2025 example of the stock market crashing.
[43:23] But still, if it falls below my strike price and it expires I have zero value. Where at least the shareholder value, right? So, this is very important to understand. Whether you think it's
[43:38] risky or I do or I don't, you just need to understand the trade. If you're a beginning trader or an intermediate trader, that's the key. You have to understand the trade and then you start to assess the risk. Do I think TNA's
[43:54] to assess the risk. Do I think TNA's going to fall from 76 to 30? I don't. But with that said, it could. Let's talk about the leverage part of Let's talk about the leverage part of this. Because you are right. Most people
[44:07] associate volatility with risk. They will, all the time. Oh, I trade the spy and I tell them I trade UPRO, 3x leverage ETF to the spy. They'll say, "Oh, that's too risky, John." And then I ask them,
[44:22] "What are you trading?" And they'll say, "Well, I'm trading the spy." But what's inside the spy? Do you know? Oh, yeah, it's the S&P 500. Ask me the same question. Well, John, what's inside of UPRO?
[44:35] The S&P 500. It is amplified 3x. So, what S&P 500. It is amplified 3x. So, what happens there? We're getting 3x the move and there is your volatility. You also get a little time decay based
[44:52] on the volatility. But because we sell time, we don't see that time decay that most will mention that I would experience with the 3x leverage. I'm getting out at my cost.
[45:07] That's very important. So, with that said, volatility doesn't always equal risk. It's all about what you're trading. Understand your trade. you're trading. Understand your trade. I'm using UPRO, which is the S&P 500
[45:23] amplified. You're using spy, which is one for one. We own the risk of the S&P 500. Think of it this way. We're both in a car that's going down a freeway with turns.
[45:39] Right? We're going to finish where we finish. You're just going to show up three times less than me. You got to handle a little volatility, but I don't equate that to risk. That's just the way it trades.
[45:55] >> I have this question I always ask my guests, and that is to place your strategy on a risk profile scale where one is very low risk and 10 is very high
[46:07] risk and you are free to define these numbers as you see fit. Where would you put your 99 delta on such a risk profile scale? >> I would put the risk
[46:21] I would put this risk maybe one notch higher than somebody that's doing a cash secured put or an in the money covered call. Remember what I mentioned earlier. The trade is the strike price and the expiration and the premium we make.
[46:36] trade that's up to you. in the money covered call owning the shares 99 delta. At the end of the day
[46:50] At the end of the day the risk is the 67 strike collect. I think that's where people need to wrap their head around the thinking that I'm just structuring
[47:03] an in the money covered call differently. I have to do a couple extra things when I manage the trade but because I get paid more cash on cash percentage gain, it's worth me doing it.
[47:17] >> But which number would you pick on this scale? >> Um I would I would absolutely think I would absolutely think writing a covered call is as risky as owning a stock.
[47:31] Right? You buy a stock that's risk. Wherever that number's at. Then you're going to sell an in the money covered call which is deep in the money, which is very conservative. Right? You're giving yourself downside
[47:45] protection in the trade. So wherever you wherever you put the in the money that's >> Where would you put it? And where would the numbers here. >> Oh, I'm going to yeah, I'm going to give
[47:58] >> This by all yourself. measures This by all measures is a conservative trade. It's the in the money covered call. I just structured it differently. I'm going to say it's a three. It's a three.
[48:12] >> No, wait a second. Let me Let me Let me put an asterisk there cuz I know somebody right now is typing, "He's using 3x leverage, which is a 10 or a No. Understand the trade, understand what
[48:27] you're using, but understand the real trade is the 67 but understand the real trade is the 67 strike with the expiration and the premium. We're doing an in the money covered call using a 99 delta long call
[48:41] that supports the entire trade. You would have bought the shares or you would have done a cash secured put using cash. And with that said, I don't use margin for any of this outside the margin
[48:56] that's needed to place an options trade. We don't go on margin. We don't pay a margin debt on this trade. >> Tom, I'm sure everyone now is very curious about your results of your 99
[49:10] delta in the money covered call strategy. And I'm curious, how do you measure your result and what have been your results trading this strategy? >> So, I have a slide for that and
[49:25] what I want to what I want to say about this slide is what you're looking at to this slide is what you're looking at to the left are all my closed trades. the left are all my closed trades. So, those are the final results.
[49:37] So, those are the final results. That equals $102,936 profit. Winning trades, losing trades. So, basically that's since May 13th. It
[49:52] dominates my trading now. Literally have 15 trades on right now. So, that number is getting bigger. It's getting bigger because my bankroll is getting bigger. Now, my average size per share or per trade
[50:08] my average size per share or per trade right now is around 40,000 80,000, it's trading. TNA, TQs. Love those. I'll go up to a 150,000 for that
[50:21] investment, for that position. And then we trade it. And then we trade it. So, the average capital I use per month So, the average capital I use per month because I do 51 to 61 trades a month,
[50:34] I'll use anywhere between 700K to 900K. And of course, that's growing because what's happening is I'm having incredible success with this. So, so that's growing because what I do is put on trades.
[50:49] And if a trade comes, a trade comes. And uh so, so with that said, that's uh that's some of the numbers and it's incredible. It's It's amplified my returns. I mean, I go from making on average 10,000 a week
[51:04] to now 30,000 a week. And we're we're incredible. We're having an incredible year where in May I made my first $100,000 month. And now, because of the 99 delta for me,
[51:19] $100,000 month in May, June, and right now I'm on average to have another $100,000 month in July. And I primarily use the 99
[51:32] >> Let's sum up very briefly. What would be your the two or three most important takeaways that you want the audience to remember from this interview? >> The takeaway is probably
[51:46] from one of the most commonly asked questions, the risk, the management, and understanding the trade. least four times, you have to understand what we're doing. We're just structuring
[52:00] differently. Same trade, same risk, structuring it differently. Understand options. and understand that you're doing an out-of-the-money and you collect the
[52:14] but in this trade you have to understand two legs of the trade. You have to understand the 99 delta and why we picked it, and then understand how we navigate bid-ask spreads.
[52:27] We always want to set limit orders and use the mid. It's very important to understand that these two components have to align perfectly with where you entered and exited the
[52:41] trading? You have to keep your numbers. If you don't keep your numbers on a spreadsheet, you're just not going to be as successful as you could be. Every single
[52:54] number I've shown you is because I use a spreadsheet. Going back to Jerry, I'll finish on this. Jerry showed me how to keep my numbers in front of me. Jerry said, "John, you place that very first trade and if you
[53:07] find yourself in a bad trade, you have to know your cost basis. profitable." What he was really telling me is What he was really telling me is you have to treat this like a business.
[53:20] you have to treat this like a business. Your money is your business. it's all about understanding the underlying, getting a favorable entry, and giving yourself downside protection,
[53:34] and using your money or your capital as efficiently as possible. >> My final question, what would be good resources to learn more? >> Absolutely, I have a YouTube channel. Go
[53:47] to YouTube and search retire on dividends and covered calls. >> All right, and I would of course also suggest for people to watch some of the Profits. We have a number of interviews actually that are
[54:04] other ways of trading covered calls, cash up covered puts, the wheel, a poor man's covered call, etc. So, check them out. John, thank you very much for coming here and sharing your 99 delta in the money covered call.
[54:19] >> Thank you very much for having me. Have a wonderful day.