On today’s show:
- Stick around for this week’s 100% FREE stock Pick – including options with specific strike price and expiration!
- Risk? He doesn’t think so → Why Jack’s personal funds are ALL IN on income plays!
- If income is so great, why don’t more people do this?
- Why even ETFs that charge just .10% are TOO EXPENSIVE! Save your money and do THIS instead.
We had A LOT of information dumped on us this week, here’s the notes we took:
If you had to start over, what would you do? Covered calls without a doubt
The majority of Jack’s funds are in income trades: spreads, selling covered calls, selling naked puts
Are the better dividend paying stocks worse in terms of premium? (Low premiuims?)
Yes, Jack told us. If the stocks are not volatile, the options prices are not good from the perspective of an options seller. One exception to this is DVN, which has good “beta”, a.k.a. volatilty.
If income trading is so great, why doesnt’ everyone do it?
The answer may surprise you — and it came in the form of a golden quote Jack gave us: “After a certain number of years trading, people’s personality is reflected in their trading style.”
In other words, income trading is “boring, but consistent”. Some people think they get into trading to make money, but in reality, they get in for the rush of hitting big winners (no matter how rare.)
What Jack sells Covered calls against:
JNJ ABBV IBM MCD KO MS
He simply picks an option 30-40 days out and 7-10% above current price.
Norman posed this question to Jack: What goes through your head: What makes you prefer income rather than going for speculative plays?
“I have no problem missing out on stuff” Jack told us. He said he uses 5-10 % of his account for speculative plays, but the bulk of his personal funds are in income plays.
“The biggest thing I do different, I dont’ look at Profit & Loss when I log into my account. All I care about is how much investment cashflow is this throwing off every month?”
Norman told us that a big part of the reason he’s into income trading is GRATITUDE:
“When I take some part of the move, I feel grateful for the part I got, I don’t need to be involved in these big moves and squeeze every penny out of every play.”
The way people get wealthy is through consistent growth over time. The rollercoaster is not a very easy road to follow. A smooth upward curve is.
A viewer had the following question for Jack: “Do you have stocks that would be good for low money startup right now?”
Without hesitation, Jack mentioned PLTR – Jack owns this, he does not recommend you own it, Do your own research he told us.
The stock trades at $15-$16. you can get 100 shares for $1500 or $750 if you do it on margin.
Then as mentioned before, pick a call 7-10% higher, 30-40 days out, and repeat that every month.
“How do you know if a stock is going to move higher?”
It’s not about knowing. It’s about pattern recognition and playing the probabilities, following the trend.
NO ONE is sure. But you play the odds.
If you buy a stock hoping for it to make a move, you NEED it to make that move to get anything from it.
If you do it as an income play (selling puts/calls against it), you vastly increase your odds.
What are the criteria Jack looks for in stocks that he will sell options on?
- Directional bias should be up
- Beta a.k.a. volatility greater than 1. (The broad market has a volatility of 1, so you need something more volatile than the broad market)
As an options seller, he holds the option he sells until expiration because he wants it to expire worthless. When it does, you keep all the money.
Why ETFs are terrible: Fees – they are making a fortune off of you for nothing
You don’t need to pay anyone to pick your stocks for you.
Plus lots of ETFs are not volatile because they are over-diversified
If you were to sell options against an ETF, you would have to get too close to the price of the ETF, rather than with a stock like AVGO, you can get further out of the money
A viewer asked Jack how he knows when to let a stock be called away or if he should buy the option back to avoid being called away. Jack said the decision is easy:
- If strike is above my cost basis, let it get called away. At that point, you’ve made money and you can sell another option the following Monday to generate more income.
- If strike is below my cost basis, I will buy the option back. I don’t want to get called out at a loss
Someone asked how Jack hedges or protects against large drawdowns:
Jack called that the “SUPER QUESTION OF THE DAY!”
Let’s say you own NVDA at 460, you want to make sure to protect yourself against a drawdown. Do what’s called a “married put” – buy a $460 put.
Jack told us this is especially useful when earnings come around on a volatile stock.
Do this especially when earnings comes around on a volatile stock.
And finally, our new feature! Jack’s free picks for this week:
META is the stock – Full disclosure, Jack owns META.
Two trades:
Debit Spread: only works if the stock goes higher
Buy META OCT 20 325 call for $6.70
Sell META OCT 20 350 call for $1.79
We can get into the trade $492 per contract
This caps our profit, but cheaper than buying a call alone
Credit Spread: works even if the stock doesn’t move
Sell META OCT 20 280 Put for $2.48
Buy META OCT 20 275 Put for $1.58
Net Credit: $0.90
Thanks and see you next week!
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— The Jack Carter Trading Team
