Market Milestones: Renting Stocks for Cash Flow

Last Friday, the SPY and QQQ formed some epic hammer candles that created a rock-solid line in the sand for the bulls. If the price closes below that line any time soon, it will be the bears' declaration of war against the bulls and a mighty blow to the bulls' defenses. We can see strong bullish candles or beautiful bearish hammers on the majority of charts that are driving this market higher, including MSFT, GOOGL, META, WMT, COST, PEP, LRCX, and SMH. There is no reason to be bearish on this market unless that candle gets taken out. And if it does get taken out, that will be your reason to hedge and pivot into a more defensive position.'

The talk of the town this week was, of course, NVDA. It’s the year 2024, and the only thing going to space quicker than SpaceX is the NVDA chart. NVDA reached astronomical heights this week and became the third stock in history to reach a 3 trillion-dollar market cap. It was, for a brief moment in time, the 2nd largest company in the world, trailing MSFT by a mere 100 billion dollars. The RLT Newsletter sold its NVDA position on Wednesday, locking in a 25% win and taking the total return of that portfolio to 98.5% in 18 months. NVDA’s favorite thing to do is go higher and make traders regret selling. However, selling into a stock split after a bullish retest gap, after a 33% move in 14 days, after NVDA hit the 3 trillion-dollar mark seems like a smart decision even if NVDA manages to make it look foolish in hindsight. We have to mention that every time AAPL has poked its head above the 3 trillion-dollar mark, a decent correction has followed. NVDA will inevitably fill its earnings gap at $960.20, and that is 24% lower than the current price.

Did you know that you could get paid rent on the stocks in your portfolio? If you own a house, you can rent it out. If you own a car, you can rent it out. If you own any assortment of baby items, especially those used when traveling, you can rent them out. You can receive rent payments from a whole host of items, but our favorite at Real Life Trading is renting out your shares via covered calls.

A covered call is a simple options strategy that requires you to own at least 100 shares of any optionable stock. When you sell a call against your shares, you are selling the right to own your shares at a certain price known as the strike price. As with all options, the calls have an expiration, and there are two things that can happen upon expiration. The first thing that could happen is the stock closes above the strike price of your sold call, thus ‘calling away’ or selling your shares at the strike price. In this scenario, you keep the premium collected from selling the calls and you sell your shares at the predetermined price. The second thing that can happen is the stock closes below the strike price of your sold call, allowing you to keep your shares as well as the premium collected when you sold the call.

Let’s run through an example with NVDA since it is about to be a $120.00 again, which allows most traders to own at least 100 shares. Let’s say a trader buys 100 shares of NVDA at $100.00 for a round number investment of $10,000.00. NVDA will get to $100.00 again, so this trade is very realistic. Once NVDA starts to bounce and push higher from $100.00, the trader can sell a covered call with a strike price of $115.00 that expires in 30 days. The premium collected should be at least $1.15 per share or $115.00. This trader has put themselves in the position to either make 1% on their shares in a month and keep their NVDA, or make 1% on their shares in a month and sell their NVDA shares for a $1500 profit. That is a pretty sweet deal! Of course there is downside risk with any strategy, but with the right risk management and stock selection, this risk can be mitigated so that covered calls become a cash flow machine. For more information on how to mitigate risk while maximizing reward, check out this brand-new course from Real Life Trading called The Retirement Cash Flow Course. It’s time to level up your portfolio, your gains and your life.

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