Episode 7: Covered Calls, Naked Puts & Credit Spreads — How, Why And When

On today’s show:

  • 5 Stocks To Look at for Covered Calls
  • T-Bills – Earn Interst, Keep Your Cash and Use Them As Collateral
  • Yields: 2%, 5% or 12% per Week. It All Depends on Your Goals.
  • What Stops People From Getting Started

Today’s Show was absolutely jam-packed with information.

We did our best to take notes, but you will have to listen — and probably rewind and go back — in order to absorb everything Jack and Norman shared with us today.

Great episode, we love you all! Thank you for all your questions. It made today’s episode extra special!

Today’s notes:

5 Stocks To Look At:

  • DVN (Devon Energy) has great covered calls and a good divided. If you use margin, you can get 100 shares at about $2500
  • FTNT (Fortinet)
  • GOOG (Google) – this stock checks all the boxes as the perfect covered call stock. Its beta (a.ka. Volatility), the way it trades, its price, the news. Even though it doesn’t pay a dividend, Jack considers it perfect
  • AAPL (Apple) – another great stock
  • PLTR (Palantir) – cheap, highly volatile stock with a beta over 2, good for covered calls. What is special about PLTR? Nothing, except that people ask all the time about a good low priced stock for covered calls or naked puts. PLTR is volatile enough to have juicy options. A lot of low priced stocks don’t have good beta (a.k.a. volatility).

Covered Call Basics

The strikes you’re selling should be 7-10% over the current value of the stock.

You always want to have a bias towards being called out. The only time you don’t want to be called out is if the stock will be called away from you at a strike price lower than your cost basis.

For example, lets say the stock is currently at $50 and your cost basis is $60. (i.e. $10 below your cost basis).

If you sold a $55 strike price call and the price is getting close to $55, you don’t want to be called out. Buy back that call you sold before the stock hits $55.

In short: Always allow yourself to get called out unless you are going to lose on the deal. Jack considers it losing on the deal when you are called out lower than your cost basis.

T-Bills – Earn Interest, Keep Your Cash and Use Them As Collateral

When bonds pay a lot, that sucks a lot of money out of the stock market. “Risk free rate of money” is what they call whatever the TBill is trading at.

How to buy TBills? You can go to TreasuryDirect.Gov or within your broker’s platform, it’s usually in a section called Products > Fixed Income. Each broker will be different. Contact your broker’s support for details.

Jack could do a whole class on T-Bills. You have to buy them before they are issued.

Using the TBill as collateral, you can get the interest on the Tbill, avoid giving up your cash and still use it as collateral.

Market Orders or Limit Orders

Jack will usually use limit orders. On rare occasion, he’ll buy a call at the market if the bid/ask spread is small, but a lot of times they are not, which is why he generally uses limit orders.

Market makers do not step in unless it’s a market order. When Jack does a limit order, they do not have to step in to fill his order.

On The Joy of Income Trading

“I love being able to get so far out of the money, where it’d be unbelievable if I got called out.”

“I don’t make money. I take money. I take whatever credit I can get. I look at the options chain and decide what money I want to take.”

Yields: 2%, 5% or 12% per Week. It All Depends on Your Goals.
What is the right “yield” to get from each trade?

Everyone is different.

Some people are happy with 2% per week. Others won’t wake up for more than 3% per week.

Jack likes 5%, it’s a sweet spot where you can make a lot of yield and not come close to getting called out often (premiums will be higher, the closer you get to at the money)

You can even get 10 or 12% if you get close to at-the-money, but you have a higher chance of being called out (or put the stock in the case of naked puts.)

Trading Discipline

In the end, all you have is your process. Having a plan and sticking to it is essential.

If you have a good plan, the idea is to have as many trades as possible within that good plan.

Because in the end, a good plan will win over time. You can’t concern yourself with a loss here and there.

What stops people from getting started with a strategy they like and believe in… But just don’t get started with it?

Most traders dream of the big trade.

But everything should lend itself to consistency, smaller safer trades. Shift your mindset to get a smaller amount consistently over time.


Compounding is how people get rich, not “shot taking.”

On Taking Long Shots

Jack says his trading is BORING. It should be boring.

Once you get a consistent strategy that brings in income, you can take shots if you want. He just took his first shot all year. (For the record, it’s the end of August.)

After hour sessions has no market makers. It’s cowboy style.

He bought some NVDA stock at $468 and some $470 calls right before NVDA announced earnings.

After hours, the stock went from $468 to $505 in a flash. He sold his stock in the aftermarket hours at a hefty profit.

But the next morning the stock had dropped enough that he lost $500 on the options.

The lesson? He took a wild shot — with a tiny portion of his account.

But his major focus is on still on small, consistent wins.

A Giant Book

Norman tells us to frame everything we do in your trading like a business.

Take your profit and treat it like real money, not “house money.”

He recommended the book “Trading Is A Business” by Joe Ross. He says it’s a giant book, so you might need an extra bookshelf if you get it.

Also, it seems to be out of print, so it’s $399 on Amazon if you have that kind of money lying around.

Put Us On Your Calendar

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And remember to put us on your calendar: Instant Income Ideas — Every Thursday at 3pm Eastern.


— The Jack Carter Trading Team

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