Unit 2 · Level 2 · Covered calls & cash-secured puts
Income strategies: unit review
Covered call: rent out shares you own, cap your upside. Cash-secured put: get paid to bid, but assignment arrives with bad news attached. The wheel: both in a loop, brilliant in chop, beaten in booms, bruised in crashes. And the golden thread: premium is always payment for a risk, never a free yield. If you can say where the money comes from, you understand the trade.
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What you get asked
You own shares at €60 and sell the €65 call for €2. The stock ends at €80. Compared with just holding, you are…
Holding: worth €80. Covered call: €65 + €2 = €67. The €13 gap is the upside you rented out just before the tenant struck gold.
Match the strategy to its defining risk
None of these are broken strategies. Each just has a specific weather it hates. The mistake is believing any of them has no bad weather at all.
Sell puts only at a strike where you'd honestly be happy to ___ the stock.
Assignment is not an accident. It's the deal. If the strike isn't a genuine buy price for you, the premium is bait, not income.
Why does the wheel look unbeatable in backtests run over sideways years?
Choose 2015-2019 and the wheel shines; include 2020's crash or 2021's melt-up and the picture sobers fast. Judge every income strategy across full cycles.
The one question that instantly deflates any 'income strategy' pitch?
Same question Formiga asks of staking yields, dividend funds, and 'guaranteed' returns. Premium selling can be a fine trade. It is never a free one. 🐜
The rest of this unit
Renting out shares and getting paid to bid: income strategies, priced honestly.