Line by line what I do for monthly income

I have been getting requests from friends to show the how of what I have been doing. My business is based on running an investment company. My company (entitle Financial Wisdom Inc.) has a trading account that buys and sells stock and options. There are about a million ways to do this, but I will show you line by line a real example that I am running.
The first tool I will explain is called a “covered call” I own some stock. Some I purchased simply to sell covered calls, some are leftover from my former employers (BMO and BNS). For this example I am using Crocs Inc.



My son (Noah)
and I were looking at stock and saw that this company had a nice positive trend. Basically while so many companies have stock prices going down or sideways (nowhere), this one was actually going up, and going up at a pretty good rate. There is a lot more analysis I did with my son, but this will show you what interested us. The price was also very attractive (about $10.00 a share). So, I bought 1000 shares (or $10,000 worth of the stock). To be honest, my entry price was $10.25. The stock is doing fine, but to be honest, I have no loyalty to the stock. I can keep the stock and sell it as it has an up day, but I am using a covered call plan.
If you sell an option, those options expire on the 3rd Saturday of the month. Yes, I know the markets are closed on Saturday, but that’s just the way it works. US options can be traded (called) at any point in time in the month until expiration. So, today is June 7. The June calls will end on June 19. Since I own this stock, I can sell a contract which says. “Hey, if this stock reaches a certain I price I will sell it to you at that price.” For this contract, people pay money. In my case, I have said I would sell my stock if the price (called the strike point) reaches $11.00 on or before June 19. Remember, I don’t care about holding this stock. If it sells, it sells. There isn’t a lot of time left until expiration, so I only got a price of ($.15) which is a fancy way of saying I got $.15 per share of stock or (.15 X 1000) in this case $150. Had I chose a longer expiration date (3rd week in July) I would have gotten $550.
Whatever happens, I got that money up front, and if I still have the stock on June 20th, I will sell another option for July, and August, and September until someone buys my stock.
I told my wife, it’s a lot like renting a house. I bought a house for $10,000 (you can only imagine what kind of house you could buy for that), buy as a slum rent lord, I am making $150 a month on my apartment. The bonus is not bad tenant. No backed up toilets in the middle of the night. No excuses for rent checks being late.
So, what can happen?
Best case would be: the stock goes to $11.00 If it goes past $11.00 then I will dump my stock at exactly $11.00. Now if the stock price goes to a million per share (no fear of that), then I will say…”bummer I guess I lost that opportunity”, but if the stock hits $11.01 on or before market close on June 18, then I will likely be called out of position. They will buy my stock. I will have made .75 per share ($750.00) plus the $150 up front money. Total $900. I made the money with a $10,000 investment, so my yield is actually 9%. That sounds pretty good, but you need to understand, that would be 9% in a 30 day time line. If, I could keep this up, my yield would be 9% times 12 months or 108% for the year. So my $10,000 would make $10,800 (and I would still have the $10,000. By the way, this it totally utopian. This is not likely to happen under any circumstances, but I am laying out the best case scenario.
Possibility 2: I think Croc (trade symbol CROX on the NASDQ exchange) will hit $11.00 maybe not by June 18, but sometime. If, we reach June 19 and we are still under $11.00, then I will make sure I have the same deal set up for July, and August etc. until my stock is sold. I collect my slum lord rent checks.
Possibility 3: Bought the stock at $10.25 what if the stock goes down. Can I still sell options on it? Yup. It helps to curb even a small amount of loss month over month.
Possibility 4: Crox appears to be a flash in the pan (maybe they are lying about the money they are making). Maybe no one really buys those cheap comfy sandals. Maybe everyone finds out about this at once by a CNN expose. The stock collapses and 0. In this case, I have lost my stake $10,000. I still get to keep the monthly premium until the stock has no value. By the way, I also don’t think this is likely.
There are many variations of how we do this, but I wanted to put this one out. If you can follow this, you can also understand some more advance plans that I will explain later.