I’m alerting you to another income trade I made this past Thursday — this time with Invesco QQQ Trust (QQQ), an exchanged-traded fund (ETF) that seeks to track the performance of the Nasdaq 100.
At the time I placed my trade, QQQ was selling for $356.80 per share and the August 9, 2021 $355 put options were going for $7.50 per share.
My trade involved selling one of these put options…
My order ended up getting filled at $7.52 per share.
There are two probable ways this trade will work out…
Scenario 1: QQQ falls below $355 by August 9, 2021
If QQQ falls below $355 by August 9, I may be obligated to buy 100 shares at $355 per share… which is a $35,500 commitment.
In exchange for my agreement to that potential purchase obligation, I was paid an instant $752 (100 shares X $7.52 per share).
This money was immediately deposited into my 401(k) retirement account, where I made the trade.
Taking this income into consideration, my cost-basis on QQQ would drop to $347.48 per share.
That’s a 2.6% discount to the $356.80 share price that QQQ was selling for at the time I made this trade last Thursday.
Scenario 2: QQQ stays above $355 by August 9, 2021
If QQQ stays above $355 by August 9, the contract expires worthless and I get to keep the $752 in income.
This works out to a 2.1% return on what my purchase obligation would have been ($7.52 / $355) in 32 days.
If I can repeat these results over the period of a year I could generate a 24.2% yield from QQQ without even buying shares.
The neat thing about this trade is that it makes money if the QQQ goes up… stays flat… or even drops a little by August 9.
P.S. When it comes to selling puts, I’ve developed a few rules that fit my portfolio objectives. I only sell a put option if:
- I want to own the underlying stock anyways
- I’ll be buying the stock at a reasonable price (which is typically fair value or better)
- The strike price of the option I’m selling is At-The-Money (ATM) or Out-of-The-Money (OTM)
- I’m comfortable owning the stock for the long-haul in case the price drops significantly below my strike price
- I’m comfortable “letting the stock get away from me” if I don’t get “put” shares and the stock takes off
- My position-sizing makes sense if I’m “put” the shares
- I can make the trade in a retirement account, such as an IRA or 401(k) to minimize taxes and tax paperwork.
Instant Cash Payouts: How I Sell Put Options for Safe Passive Income
In this video, I tell you about my put-selling strategy, introduce you to the seven rules I follow when selling put options, walk you through two recent trades I made with Starbucks (SBUX) where I sold puts that generated a total of $760 in income… and tell you about what I believe are the three biggest downsides to selling put options.