Strange How I’m Making Money Today, and My Tesla Stock is Down

cashflow cashflow machine covered calls coveredcall financialfreedom financialindependence financialtips income investing investmentstrategy makemoney mark yegge marketinsights optionstrading passive income passiveincome retirement income riskmanagement stockmarket stockoptions stocktrading tesla tradingeducation tradingstrategies wealthbuilding wealthcreation

Many investors panic when they see their stock value drop, but savvy traders know there’s more than one way to profit in the stock market. Covered calls and in-the-money options are strategies that allow you to make money even when your stock’s value fluctuates. This blog breaks down how Mark Yegge leveraged these techniques to turn Tesla’s price drop into a profitable day.

The Power of In-the-Money Protection

One of the common misconceptions about selling options is that you’re vulnerable to losing when the stock drops below its strike price. However, as Mark explains, being "in the money" provides a unique advantage: protection against downside movement.

In this case, Mark held Tesla 390 calls, which were deep in the money as Tesla’s stock fluctuated between $370 and $430 over the last few weeks. While the stock price dropped by $13.18 on this particular day, Mark still made $1,793. How is that possible?

How Does In-the-Money Protection Work?

The magic lies in the way options prices are structured. An option’s value consists of:

Intrinsic Value (In the Money Amount): The amount by which the stock price exceeds the strike price.
Extrinsic Value (The Juice): The time premium or the income generated by selling the option.

When the stock price falls, the intrinsic value decreases, but so does the option’s price. If you’ve sold the option, this drop in value is reflected as a gain in your position. Essentially, the intrinsic value acts as a cushion, protecting your portfolio against the stock’s volatility.

Why Timing is Key

In Mark’s Tesla example, he chose not to roll his 390 calls immediately, despite there being minimal juice left—only 60 cents. This cautious approach gave him a significant cushion against further drops in Tesla’s stock price. Here’s why timing is crucial:

Market Signals: Waiting until the market gives clearer signals can prevent unnecessary losses.
Yellow Market Conditions: In a cautionary (yellow) market, it’s better to preserve your position than to chase higher premiums.
Cushion Maintenance: Keeping an in-the-money position ensures protection as the stock moves.

This patience paid off, as Mark was able to squeeze out the remaining juice while keeping his position safe.

Why You Shouldn’t Fear Assignment

A common question among options traders is: “Will I lose my stock if I hold in-the-money calls?” The answer is no—at least not if you manage your trades properly.

Mark emphasizes that in-the-money calls are unlikely to be exercised early unless you allow them to expire unrolled. By rolling your options before expiration, you maintain control over your position while collecting the juice.

Key Takeaways from the Tesla Trade

Be Patient: Sometimes it’s better to wait and maintain your cushion rather than chase small gains.
Understand the Juice: The extrinsic value is where your income lies, so focus on strategies that maximize this component.
Use Caution in Yellow Markets: When market conditions are uncertain, play it safe and prioritize preservation over risk.
Roll Smartly: Always roll your options before expiration to avoid assignment and maintain flexibility.

Life-Improving Tips from Covered Call Trading

Peace of Mind: Knowing that in-the-money positions protect you against volatility helps you sleep better at night.
Consistent Income: Generate reliable cash flow even when stocks are down.
Strategic Thinking: Trading becomes less emotional when you rely on systems and strategies like Mark’s Cash Flow Machine.
Financial Freedom: Spend less time stressing about the market and more time enjoying life, whether it’s traveling or pursuing hobbies.

Frequently Asked Questions (FAQs)

What does “in the money” mean in options trading?
"In the money" refers to an option whose strike price is favorable compared to the stock’s current market price. For a call option, this means the stock price is above the strike price.
Why didn’t Mark roll his Tesla calls immediately?
Mark prioritized caution due to yellow market conditions. By holding his in-the-money position, he preserved his cushion against further stock drops.
Can I lose my stock if I sell in-the-money calls?
Not if you manage your trades properly. By rolling options before expiration, you can avoid assignment and maintain control over your stock.
How do I decide when to roll my options?
Consider market conditions, the remaining juice, and your risk tolerance. It’s often better to wait until closer to expiration to maximize your income.

Call to Action

Ready to take control of your portfolio and turn stock market volatility into consistent income? Here’s how you can get started:

Get started today

Conclusion

Covered call strategies, especially with in-the-money protection, offer a unique way to generate income while minimizing risk. As Mark’s Tesla example shows, you can still profit on a day when your stock is down by focusing on the juice and timing your trades wisely.

Strange How I’m Making Money Today, and My Tesla Stock is Down

Insider Tips Newsletter

Join Our Free Trial