Adding ZScaler (ZS) to the Portfolio for More Income — Plus, Busting Some Myths About Covered Calls

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Investing in stocks isn’t always about chasing growth. For income-focused traders, strategies like covered calls offer a consistent way to generate returns. In this blog, we’ll dive into how Mark Yegge is adding ZScaler (ZS) to his portfolio, applying covered calls to create income, and busting common myths surrounding this strategy.

Why ZScaler?

ZScaler (ZS) is a cybersecurity company with strong earnings growth and robust financials. The company's return on equity stands at 47% with an earnings growth rate of 74%, demonstrating resilience and profitability. Despite market volatility, the company has shown promising potential for long-term appreciation.

Mark’s approach involves creating consistent income using covered calls while maintaining a base position using synthetic options.

The Covered Call Strategy in Action

Mark has set up a synthetic position using long-term call options expiring in March 2026 with a 135 strike price. To generate income, he sold five contracts of 210 strike price calls set to expire in April 2025.

Here’s how this works:

Base Position: Deep in-the-money long-term calls act as a substitute for holding the stock.
Income Generation: Short calls collect premium income. If the stock remains below the strike price, Mark retains both the premium and his base position.
Risk Management: Selling in-the-money calls provides downside protection by collecting larger premiums.

By applying this strategy, Mark generates consistent income even when the stock moves up, down, or sideways.

Busting Common Myths About Covered Calls

Myth 1: Covered Calls Cap Your Gains

While it’s true that covered calls limit upside potential, they ensure you’re consistently earning income. Mark emphasizes that traders should focus on collecting the juice — the extrinsic value of the option.

"You're not losing money when the stock goes over the strike price. You're still gaining from your base position while keeping the premium."

Myth 2: You'll Get Assigned and Lose the Stock

Many fear early assignment when using covered calls. However, most option buyers are unlikely to exercise their options before expiration, especially if there’s still time value remaining.

"Option buyers are cheap — they prefer to hold options rather than exercise them. I rarely get assigned, and even if I do, it’s easy to manage."

Myth 3: Covered Calls Are Only for Conservative Investors

While covered calls are considered a safer strategy, they can be applied creatively to maximize income in volatile markets. Using synthetics further enhances flexibility.

"By focusing on the juice, I earn consistent income without worrying about predicting the market direction."

Life Improving Tips

Generate Passive Income: Implement covered calls to create a steady income stream while maintaining your stock positions.
Stay Disciplined: Establish a circuit breaker for your trades to manage risk effectively.
Avoid Emotional Decisions: Trade based on probabilities and numbers rather than emotions.
Educate Yourself: Understanding how extrinsic and intrinsic values work will empower you to make smarter decisions.
Embrace Flexibility: Adjust your covered call strategy as the market evolves. Rolling your options can capture additional premiums.

FAQs

Why did Mark choose to expand his ZScaler position?
Mark identified strong growth potential in ZScaler with robust earnings. After observing its movement and validating his hypothesis, he added to his position for greater income generation.
How does Mark decide when to sell calls?
He evaluates the stock’s volatility, market conditions, and the extrinsic value of options. His goal is to earn around 2-4% monthly using covered calls.
What happens if the stock price drops?
Mark’s deep in-the-money call options offer protection by reducing his effective cost basis. Additionally, the premiums collected serve as a buffer against losses.
Is this strategy suitable for beginners?
Absolutely. Beginners can start with straightforward covered calls on blue-chip stocks before exploring advanced strategies like synthetics.
How can I prevent early assignment?
Early assignment is rare, especially if the call options have extrinsic value. Additionally, rolling your calls before expiration further reduces the risk of assignment.

Call to Action

Want to learn how to create consistent income like Mark?

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Conclusion

Covered calls remain one of the most effective strategies for generating consistent income, especially in uncertain markets. By adding ZScaler to his portfolio and applying this method, Mark Yegge demonstrates how traders can profit without constantly predicting stock movements.

If you’re interested in mastering this approach and building a reliable income stream, follow Mark’s lead and explore the power of covered calls.

Adding ZScaler (ZS) to the Portfolio for More Income — Plus, Busting Some Myths About Covered Calls

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