She considers a field and buys it; out of her earnings she plants a vineyard. Proverbs 31:16
I don't know how much thought you've given to the field that the Wife of Noble Character in Proverbs 31 bought, but it's been on my mind lately. This wise woman saw a field that she thought would bring benefit to her family and she bought it. First off, this means that her husband saw her wisdom and trusted her with the family's finances so she had money available to buy a field, that's not nothing. But then we get to the part where out of her earnings she planted a vineyard. How did she get earnings? It's not like buying the field automatically gave her some sort of income. No, she needed to rent it out or plant it herself in order to receive earnings from it. But she didn't stop there. When she got earnings from the field, she turned them around and had them make profit too by planting a vineyard. This would bless her family both with the fruit of the vine as well as the profit she could get from selling the excess. This wise woman always had an eye for how she could grow her family's savings!
Today, like in the biblical times written about in Proverbs 31, real estate is still a very sound investment. But you wouldn't buy a second house just to let it sit there and look pretty, you'd rent it out and profit from the income it brings. While it would be nice to buy a field and profit from it like the Wife did, today that would take tens if not hundreds of thousands of dollars and that's a little out of reach for the average wife today. Now, if you have any amount of savings, it's a really good idea to have it be working for you and earning a good return which can be done at least in a small way with a High Yield Savings account that I wrote about before. An alternative investment you might be considering in an effort to have your money earn even more would involve purchasing stock. So, you do your research, find a company that matches your values and has a good outlook for the future, and invest in that future, hoping that you will profit together. You put $1,000 in and wait. And wait. And wait. Maybe in 5-10 years that stock has gone up quite well and you can sell it for a 40-50% profit, but by now you're really invested in this company, so you don't want to sell. But if you don't sell, how do you actually make any income from the stock? Sure, it might give a 1-4% dividend each year, which is nice, but you're not going to retire on that. So, what's a wise wife to do? How can you make these stocks actually bring in income? You rent them out of course, just like a house!
A few weeks back we looked at Growing What God Gave You and I mentioned that I would be writing a post soon about stock call options, and here I am today to fulfill that promise. With call options, you are, in effect, renting out your stocks. It gives you a regular source of income on an investment that otherwise would take a great deal of time, or constant trading management, to realize a profit. Here's what I've learned over the last few weeks about this: it's accessible to anyone even though it's shrouded in mysterious vocabulary that makes it seem like something only someone with an MBA or a day trader could handle. Today I'm going to break it down for you and help you consider if, maybe, call options are a good option for you.
What are call options? Basically, you are selling the opportunity to purchase your stock at a certain price. Let's say your stock is currently trading at $25 a share. You could offer to someone that they could buy your stock for $26 per share, even if it goes up or down. If it goes down, or stays the same, odds are that the purchaser will let the opportunity go and you get to keep the premium (the amount you agreed upon for the opportunity). If the stock goes up, especially if it increases dramatically, then the purchaser will likely opt for "assignment" and take you up on the offer. In that case, you'll lose out on any gains the stock might have had, but you still get to keep the premiums. Let's talk this out in a hypothetical scenario. My stock is trading at $25 a share. I sell a call option for $26 on 100 shares for $0.15 per share, so they give me $15. The price drops to $24 so nothing happens, the options expire, and I do it again next time. Alternately, the price jumps to $30, the purchaser exercises their right to buy them at $26, so I get an additional $2,600 (the price of the 100 shares) and I still keep the original premium. Yes, I missed out on the extra $4 a share that I could have gotten if I had kept the stocks and sold them myself, but would I have? I haven't done that with my NCLH in six years, so I probably wouldn't have then. In my case, no loss. Now you have $2,600 to reinvest in another stock, or the same one, and keep the process going.
Stock
This whole process starts with stock. What kind of stock and how much of it you hold matters very much for this. There are a few characteristics of a stock that will work well with selling call options. You want to look for a company that:
- Has a market capitalization of over $2 billion
- Trades at least 500k shares each day
- Their stock trades above $20 per share (1)
Already I can see your eyes glaze over as you see terms like market capitalization and daily trading volumes. Here's the secret, you can do a simple internet search to find out any of that information. Let's say, like me, you read an article back in 2020 that said Norwegian Cruise Line was in a perfect position to withstand the COVID epidemic and come out on top after, so you bought your first stock purchase when it was down at $11 a share. So here I am with a bunch of NCLH (Norwegian Cruise Line Holdings) stock that I've mentioned before when writing about their
Shareholder Benefits Program. I definitely don't want to sell it, even though it's price has more than doubled so I've made a 100% profit on it, because I make regular profit through
Onboard Credit because of it. I got interested in if this would be a good candidate for call options, so I asked my AI friend (Microsoft CoPilot) and it, of course, had a very enthusiastic answer for me. AI really likes to sound confident and positive, but you can't take everything it says at face value. But, after what I've learned about identifying good stocks for this endeavor, I started lining up NCLH against the qualifications through
simple internet searches. NCL has a market capitalization of between $10-11 billion, which well exceeds the $2 billion recommendation. Its average daily trading is about 17.66 million shares, again above the 500k minimum. Today's stock price is about $24 per share, so it matches all the criteria! Another thing to take into consideration is a stock's Beta - a measurement of it's volatility or how likely/frequently it goes up or down. This article
(1) recommends a beta between 0.8-1.5. Again, this is something you can easily do an internet search for, and when I searched for NCLH's beta, I read that it is about
1.8, which is a little higher than ideal, but I'm willing to risk it because I have more shares than I need for my Shareholder Benefit (I need to keep 100 shares safe for this).
Now, call options are written (sold) for 100 share allotments, so if you have 25 shares of a company, you're out of luck. This means you'll need at least $2,000 to get this hobby started (100 shares of stock that trades above $20). If you own 50 shares of a stock that is trading at $40 though, you could sell it and diversify into 100 shares of a lower cost stock.
There are a few more things to take into consideration when choosing a stock to use for call options, especially if you'll be purchasing a new stock for this purpose. It's really nice if that stock has a built-in income generation. I know we're talking about generating income through call options, but this is in addition to that. Through most stocks this would involve a dividend. That's a payout that they give to their stock holders periodically to "profit share" with them and entice them to hold onto their stock. For example, with Microsoft they give a dividend quarterly at $0.91 per share. Now, $0.91 isn't going to get you very far, but if you have 100 shares (the minimum required for doing call options) that's $91. We can go out to dinner for that! With my NCLH stock I get this additional income through the Shareholder Benefit Program that gives me $50-$200 in onboard spending per cruise. You also have to walk that fine line between being willing to let the stock go if it is assigned (more info to follow) and being willing to hold onto it long term if it is not. You don't want to pick a stock that stresses you out either because of its volatility (jumping up down and sideways in price all the time) or because of things that the company stands for (I'm looking at you, Tesla). I asked CoPilot to generate a list of 10 stocks for me under $200 per share that fit these requirements and here's what it came up with:
| Ticker | Company | Price (<$200) | Beta | Market Cap | Avg Volume | Dividend? | Why It’s Great |
|---|
| KO | Coca‑Cola | ~$60 | ~0.6–0.7 | $250B+ | High | ✔ | Ultra‑stable, great dividend, tight spreads |
| PEP | PepsiCo | ~$170 | ~0.8 | $230B+ | High | ✔ | Strong dividend, consistent premiums |
| MRK | Merck | ~$120 | ~0.4–0.5 | $300B+ | High | ✔ | Low beta, safe, excellent liquidity |
| PFE | Pfizer | ~$30 | ~0.6–0.7 | $160B+ | Very high | ✔ | High volume, easy fills, strong yield |
| CSCO | Cisco | ~$50 | ~0.9 | $200B+ | High | ✔ | Reliable dividend, stable movement |
| INTC | Intel | ~$40 | ~1.0 | $170B+ | Very high | ✔ | High liquidity, good premiums |
| VZ | Verizon | ~$40 | ~0.4–0.5 | $160B+ | High | ✔ | Big dividend, slow mover (low assignment risk) |
| T | AT&T | ~$18 | ~0.6–0.7 | $130B+ | High | ✔ | High yield, predictable price behavior |
| BAC | Bank of America | ~$35 | ~1.2 | $280B+ | Very high | ✔ | Good beta for premium, huge liquidity |
| WFC | Wells Fargo | ~$50 | ~1.1 | $200B+ | High | ✔ | Strong liquidity, steady premiums |
Assignment
This is the real pro/con of call options. It's like the angel and devil on Donald Duck's shoulders in the cartoon. You are renting out the opportunity to buy your stock so, periodically, someone might take you up on that. Assignment means that the person purchasing your call option has decided to exercise their right to purchase your stock at the agreed upon price. If your stock gets assigned, it is no longer your stock, it has been assigned to the purchaser of your call option, but you are the proud new owner of all the cash that they paid for it! If you really love your stock, if it is sentimental and dear and important to you, you should not sell call options for it because it very well might get assigned. If you're anything like me, the less you want it to be assigned, the more likely it will be! On the other hand, if you just want out of this stock who knows if your call options will ever be assigned 😵💫. So, you have to be ok with letting them go, and you have to be ok with holding onto them. That's the sweet spot for this earning opportunity!
Strike Price
So, how much do I offer my call options for? Well, that depends on how interested you are in having your stock assigned. Here's a little more vocabulary for you that you'll see everywhere if you do any looking into this:
- Strike Price: The price you are offering your call options for
- ATM At the Money: This strike price would be equal or very close to the current trading price of the stock
- ITM In the Money: Below the current stock price (i.e. The current price is $25 and you offer $24)
- OTM Out of The Money: Above the current stock price (i.e. The current price is $25 and you offer $26)
Your strike price, what you are offering your call options for, will be decided by how interested you are in retaining your stocks. As you can imagine, the more ITM (In The Money) your price is, the more likely someone will be to exercise their option to assign the stocks, and you will have money instead of stock. If you'd rather keep the stock (but you are still ok if it gets assigned) you'll want to choose a strike price more OTM (Out of The Money). You're more likely to keep your stock this way, but you'll get a lower premium. As you can imagine, people are willing to pay more for the opportunity to get more.
For example, today (2/24/26) NCLH is trading at about $24. I could sell a short-term option expiring in 3 days (weekly call options expire on Fridays and I'm writing this on a Tuesday) right ATM ($24) for $0.49 per share. I could be daring and sell one slightly ITM for $23 at $1.15 per share or I could be more conservative and sell one OTM for $26 for only $0.04 per share. These are very short-term options so you don't get much per share. If I wanted to set it and forget it, selling a long-term option that expires a little over six months from now on 9/18, these numbers would be different. A $23 strike price would get me about $4.30 per share, $24 would net $3.80 per share and $26 would get $3.00 per share. That sounds like a lot until you do the math and realize that $0.49 per share over the nearly 30 weeks between then and now would have earned you almost $15 per share, instead of the $3.80 you're getting for a six-month call option. The conservative OTM options though would have gotten you $3.00 per share for a six-month call option and if you had sold weeklies at this price, and the options remained the same, it would only get you $1.18 per share. That's because over that time it has more of a chance to go up. It pays to do the math!
If you're still stuck on what strike price to aim for, this article
(1) recommends that you look for something that will yield 2-4% per month. For a stock trading at $100 that means $2-4 per month or $0.50-1.00 per week. The higher the premium, the higher the risk of assignment, but you're getting money from it so you're not losing the entire difference between the stock price and the sale price. Let's say you wrote a call for a strike price of $25 at $1 per share. The stock price went up to $27 and the purchaser exercised their option to buy at $25, but you didn't lose $2 a share, you only lost $1 because of the premium you collected.
Making a Plan
If you're going to embark on a journey like this, it pays to have a plan in mind. Are you looking to move this stock along and diversify? Do you think you'd like to hold onto this stock and just have it make a little extra on the side? All this will help you to decide your strike price, but regardless, you need to have an idea of what you would do if your stock gets assigned, because after all, you are offering people the opportunity to buy it. We currently hold a number of shares of Microsoft stock (MSFT) from my husband's time working for them. We aren't particularly attached to them, and would actually like to diversify, so this give me the opportunity to have them make more money by selling call options ATM. I'm not so desperate to get rid of them that I want to list them ITM because then I'm awfully likely to lose out, but I'm ok if they sell at a fair price. So I want to have in mind what I will do if I end up cash rich and stock poor. Yes, I could stick the money in a
High Yield Savings account and have it earn 4%ish, but I want it to do more, so I'll probably buy new, different stocks with it. I've currently got my eye on Nvidia (NVDA), Verizon (VZ) and Coca-Cola (KO), but we'll see what happens.
Timing
Timing is everything. There are two aspects of timing you'll want to keep in mind with regard to call options. First, how far in the future do you want to set your expiration? You can run weekly calls, monthly, or even longer. The
longer the call is out for, the higher chance the stock will change in price
significantly. That’s why you’ll often see higher premiums for longer calls. That
doesn’t necessarily mean they’re worth more though. Sometimes 4 weekly call
option premiums will add up to even more than the monthly one. It does mean
less time spent managing things though, if that matters to you. If you are more
of a “set it and forget it” type, then monthly call options, or even longer,
might suit you.
The other thing you
have to watch for with timing are business events. These typically take the
form of earnings reports and dividend payments, but it could include something
like a merger or acquisition. It might be a good idea to avoid selling a call
option on a week with one of these events as earning reports can make the stock
price vary wildly and options are more likely to be assigned early on weeks where
dividends are paid out so they can take advantage of them. That, of course,
means you’d miss out on it. Which brings me to the very interesting concept of rolling.
Rolling
So, you've written (sold) a call option for 100 shares of stock and its expiration is coming up in a couple of days, but the stock price is climbing. Oh no! You don't want to miss out on a big gain! But wait! If your option hasn't been assigned, you're not out of luck yet. If you're changing your mind about letting it ride, you can consider rolling the call. What that means is that you buy back your call options and sell a new one for a later date, and possibly at a higher strike price if you want. The great news is, you don't buy them back at the price you sold them for initially, you buy them back at today's price, which typically will be lower. You may have sold the options on Monday for $0.49 a share, but now, on Wednesday, they are only going for $0.19. You would buy them back for $19 ($0.19 x 100 shares) and keep the $30 difference. As a part of the same transaction, you can re-sell the options for a future date, and pick a new strike price that is appropriate. Let's say the stock was trading at $25 on Monday when you sold your options, but now it's at $30. You might sell your new call options for the following Friday with a strike price of $32 or even $35 depending on what's going on. You always run the risk of the buyer exercising their options early, but often you'll be able to roll the call and avoid the assignment.
Income
All this money you’re
making selling call options, yeah that’s going to be counted as income and the
IRS will want to know about it next year. Your brokerage firm will not be
taking taxes out of your earnings, that will be your responsibility when you
pay your taxes next. My strategy for this is to put the
amount of taxes we’re subject to for our income bracket into a High Yield Savings
account. That way it will be ready to pay when needed and still be earning
something until then. More importantly, if you are a person that feels led to
tithe, this income would certainly qualify for that as well. The first 10% of each
premium payment comes off the top for that! Everything I have and everything I’m
given belongs to God and it’s important to me to acknowledge that and give back
the first fruits of anything that He has entrusted me with to Him.
Here's the Thing: I love stacking, always have. When you have a coupon for an item that is already on sale? That's stacking. A
credit card offer for something that is listed in a
shopping portal? That's stacking. Covered call options are just like this. I get my stock, it grows over time (hopefully), I collect dividends (or shareholder benefits),
and I can make a little on the side by selling call options on it. That's my kind of investment!
Articles I used to get information for this post:
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