How to Make $15K Monthly with Nvidia Covered Calls
Covered calls are a popular income-generating strategy in the options trading world, but few traders realize the immense potential of applying this strategy to Nvidia stock. In this blog, we’ll break down a powerful covered call strategy that can generate $15,000 a month using Nvidia stock, explained in detail by a seasoned trader.
The Strategy Overview
This strategy involves four cornerstones:
- The Right Stock – Choosing Nvidia as the target stock for its strong fundamentals and leadership in AI technology.
- The Right Market – Timing the trade based on market conditions.
- The Right Spot on the Chart – Using technical analysis to identify the ideal entry point.
- Squeezing the Juice – Generating consistent income from the "juice," or extrinsic value, of options contracts.
By combining these elements, traders can execute a conservative yet highly effective approach to create substantial monthly income.
Why Nvidia?
Nvidia is a powerhouse in the tech industry, leading the charge in artificial intelligence, graphics processing units (GPUs), and innovative technology. The company's CEO, Jensen Huang, has consistently guided Nvidia to dominate the AI space, making it a popular choice among traders.
While Nvidia’s stock price has seen incredible growth, it has recently entered a phase of consolidation. This creates the perfect opportunity for options traders to capitalize on the stock's price movement while reducing risk.
Step-by-Step Breakdown
- Establish a Base Position
The first step involves purchasing deep in-the-money call options with an 88 delta, specifically the 90 strike calls. These options are trading around $5,300 per contract. The trader buys 35 contracts, totaling $185,500.
These deep in-the-money options provide a strong foundation for the trade, allowing the trader to benefit from Nvidia's price movements with less exposure to the stock's downside volatility.
- Sell Covered Calls
Next, the trader sells 35 contracts of the 130 strike calls, which are out-of-the-money options expiring in one month. These options are sold for $10–$11 per share, generating $35,000 in premium income.
This premium income creates a cushion and effectively lowers the trader's cost basis in the overall position.
- The Juice – Monthly Income
The real magic lies in the extrinsic value of the options, known as "the juice." The 130 strike options yield $420 per contract in extrinsic value. Multiplying this by 35 contracts, the trader generates a total of $14,700 in monthly income.
This income is earned regardless of whether Nvidia’s stock price goes up, down, or stays the same, as long as the stock price remains above the strike price at expiration.
- Roll and Repeat
As expiration approaches, the trader avoids assignment by rolling the options to the next month. This involves buying back the expiring calls and selling new calls with a later expiration date.
This rolling strategy ensures consistent monthly income while maintaining a defensive posture in the market.
Risk Management
No strategy is without risks, and this covered call strategy is no exception. Here are some considerations:
- Downside Protection: The deep in-the-money calls provide a buffer against stock price declines, but a sharp drop below $126 could result in losses.
- Defensive Adjustments: If Nvidia’s stock falls significantly, the trader can adjust the strike prices or implement defensive strategies to repair the trade.
- Assignment Risk: While the trader minimizes assignment risk by rolling options before expiration, there’s always a small chance of being assigned early.
Why This Strategy Works
This approach is ideal for Nvidia because of the stock's current technical setup and the high premiums offered by its options. By combining deep in-the-money calls with out-of-the-money covered calls, the strategy maximizes income potential while mitigating risk.
The monthly income of $15K makes this strategy a lucrative option for experienced traders who understand the nuances of options trading.
However, success with options requires discipline, thorough research, and an understanding of the risks involved. If you’re considering adopting this strategy, start small, track your performance, and refine your approach over time.
Life-Improving Tips
- Leverage Covered Calls for Steady Income: Covered calls are an excellent way to generate consistent income while maintaining exposure to a stock like Nvidia.
- Choose the Right Stock: Focus on stocks with strong fundamentals, such as Nvidia, which has a proven track record and growth potential in AI-driven industries.
- Set Up a Defensive Strategy: Protect your downside by selling deep-in-the-money options and creating a cushion against price drops. This mitigates risks while ensuring income generation.
- Stick to the Plan: Roll out positions before expiration to avoid assignments and maintain the cycle of earning premium every month.
Educate Yourself: Understanding options and defensive strategies is key to success in options trading. Dive deeper into learning how different scenarios affect your trades.
FAQ
- Can I use this strategy with a smaller account size?
Yes, but the income generated will be proportional to your position size. You can start with fewer contracts, such as 1 or 2, and scale up as your confidence grows.
- What happens if Nvidia’s stock price drops significantly?
If Nvidia’s stock price drops below your strike price, you may need to adjust your strategy by rolling down your covered calls or considering defensive measures like buying protective puts.
- How often do I need to monitor this strategy?
While this is a relatively hands-off approach, you’ll need to monitor the position weekly and act as expiration approaches to roll your contracts or make adjustments.
- Do I need advanced technical analysis skills to execute this strategy?
Basic technical analysis is helpful for identifying ideal entry points and understanding price movements, but you don’t need to be an expert.
- Is this strategy suitable for beginners?
This strategy is better suited for intermediate traders with a solid understanding of options trading. Beginners should focus on learning the basics of covered calls before trying advanced techniques like rolling.
Call to Action
Unlock the potential of earning $15K per month with Nvidia covered calls! Start building your financial freedom by learning advanced options strategies.
Conclusion
The Nvidia covered call strategy showcases how traders can leverage a high-performing stock to generate consistent passive income. By carefully selecting strike prices, managing risks, and rolling options when necessary, this strategy turns a volatile market into a dependable income stream.
