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re: "Premium Income" strategy
Posted on 7/31/26 at 10:58 am to thunderbird1100
Posted on 7/31/26 at 10:58 am to thunderbird1100
quote:
I would then owe $500 to close it out (since it doesn't assign 100 shares, it trades European style and settles for cash).
Interesting. So you never lose your shares you just pay the difference in cash?
This post was edited on 7/31/26 at 10:59 am
1
Posted on 7/31/26 at 11:01 am to TorchtheFlyingTiger
Not for everyone because it's technical and gets into a lot of math that will turn off a lot of people. They do it in a very accessible way, so it's not above anyone but you better be prepared to think. Since switching from growing my money to living on it obviously how I think about money is changing. I'm a DIY investor and so I am looking for frameworks on how to make better decisions and confirm to myself that the decisions I'm making are good ones given my goals.
From Amazon (paraphrased): The premise is if the wealthiest families had spent a reasonable fraction of their wealth, paid taxes, invested in the stock market, and passed their wealth down to the next generation, there would be tens of thousands of billionaire heirs to generations-old fortunes today. So why can we not find one such billionaire on any current rich list?
"Where are all the billionaires?" TED Talk featuring Victor Haghani
From Amazon (paraphrased): The premise is if the wealthiest families had spent a reasonable fraction of their wealth, paid taxes, invested in the stock market, and passed their wealth down to the next generation, there would be tens of thousands of billionaire heirs to generations-old fortunes today. So why can we not find one such billionaire on any current rich list?
"Where are all the billionaires?" TED Talk featuring Victor Haghani
Posted on 7/31/26 at 11:04 am to TX_Tiger23
I'm not an options trader, and I've been very vocal on this board about why, but the OP has my brain in a pretzel here. First, you mention put spreads, which is buying a put with a higher strike price and selling a put with a lower one (this is a bear put spread, a bull put spread is the opposite). The max loss in a bear put spread is just the difference between the premium you pay and the premium you are paid to enter this trade. You don't have to own the underlying at all.
As many here mentioned, it seems like you were describing a covered call strategy, which is totally different. This is owning the underlying (in your case VTI), and selling call options and collecting the premium. As someone else mentioned, the max downside is that the stock actually goes well above the strike price of the call (in this situation you don't lose money, but you miss out on the upside). This is why it is considered a relatively safe strategy. Many tout it as a way to make income.
I say all of that to say this: you should NEVER allocate money to a strategy you do not fully understand. The time/effort of doing it yourself is not worth it, and paying a professional to do this is also not worth it.
As many here mentioned, it seems like you were describing a covered call strategy, which is totally different. This is owning the underlying (in your case VTI), and selling call options and collecting the premium. As someone else mentioned, the max downside is that the stock actually goes well above the strike price of the call (in this situation you don't lose money, but you miss out on the upside). This is why it is considered a relatively safe strategy. Many tout it as a way to make income.
I say all of that to say this: you should NEVER allocate money to a strategy you do not fully understand. The time/effort of doing it yourself is not worth it, and paying a professional to do this is also not worth it.
This post was edited on 7/31/26 at 11:06 am
Posted on 7/31/26 at 11:06 am to bayoubengals88
quote:
Interesting. So you never lose your shares you just pay the difference in cash?
You never own shares period in my strategy, if you own the shares at any point they wont continue to get the 3.35% APY that RH pays on cash balance in brokerage or as options collateral (cash as options collateral, NOT shares as options collateral).
Your cash just sits on sideline as collateral for selling the put, with RH Gold they continue to pay 3.35% APY on it as something new they added back in March of this year.
I never actually own any of the XSP ticker. Just sell the put option, the appropriate amount of cash is set aside as collateral and either buy to close the option or let it expire. If it expires below my strike price it just debits my cash balance to settle the trade.
I.E. I sold a $700 strike price put for $100 which I get credited up front; it expires at $698. It would then debit my account $200 to settle the option, which is only a $100 true loss for me since I got $100 up front as a credit if that makes sense.
Posted on 8/1/26 at 1:39 am to TorchtheFlyingTiger
You're probably better off going through these dividend ETFs holdings, doing a bit of research and picking your favorite 10-15 stocks in order to produce income, and most importantly without their fees.
Posted on 8/1/26 at 8:49 am to DraggingPride
This is in taxable brokerage, if I were to reallocate into other ETFs or stocks, I'd be realizing a ton of capital gains all.at.once and face a huge tax bill.
Besides, I prefer the growth prospects of VTI over a dividend fund and I'm not rolling dice picking individual stocks.
Just determining if this is a feasible method to increase annual spending without having to sell my assets. Is the added risk worth it to potentially keep my assets in.place.and growing?
Besides, I prefer the growth prospects of VTI over a dividend fund and I'm not rolling dice picking individual stocks.
Just determining if this is a feasible method to increase annual spending without having to sell my assets. Is the added risk worth it to potentially keep my assets in.place.and growing?
This post was edited on 8/1/26 at 9:38 am
Posted on 8/1/26 at 11:39 am to thunderbird1100
Yes, this is considered cash secured or cash backed put writing. It’s probably the second safest or most conservative way to invest with options. Your only risk is you get put or have to buy the stock at the known price. Ideally, you’re doing this only on stocks you wouldn’t mind buying at a predetermined price.
Posted on 8/1/26 at 11:42 am to TorchtheFlyingTiger
If you’re this worried about the capital gains you have then ask your Schwab guy about direct indexing. It’s a strategic way to create losses, while still having upside, to offset your capital gains.
Posted on 8/1/26 at 11:52 am to TX_Tiger23
I've looked into direct indexing, again don't think it works for my situation because I'd have to realize gains to reallocate from index ETFs to individual stocks. The concept is neat but use cases seem pretty niche. It works for a huge lump sum like an inheritance or if you are deliberately divesting from an over concentration in individual stock that's had a huge run up. Even then, the ability to loss harvest atrophies over time as most your holdings grow with market and you have fewer losses.
Posted on 8/1/26 at 12:37 pm to TorchtheFlyingTiger
Yeah, it works if you have other taxable account investments as well. But I guess that’s your point…all of your taxable brokerage money is tied up in gains in VTI.
Posted on 8/1/26 at 3:53 pm to TorchtheFlyingTiger
quote:
Even then, the ability to loss harvest atrophies over time as most your holdings grow with market and you have fewer losses.
Yeah, this was always a big issue with direct indexing. That’s why the hottest thing right now in family offices is the 130/30 long short strategy (quantinno, AQR products). Constantly generating losses in either market direction.
Posted on 8/1/26 at 5:04 pm to RoyalWe
I'm leaning towards just selling shares and paying LTCG taxes to generate extra spending $ for now.
I haven't wrapped my head around the extent of additional risk I'd be taking on. At this point I can weather a steep decline but if my greed and poor strategy selection led to accelerated losses the mental toll wouldn't be worth it. Not to mention the look on my wife's face each time I mentioned I was considering this. If it failed I'd never hear the end of it (although she wouldn't notice unless I showed her)
I haven't wrapped my head around the extent of additional risk I'd be taking on. At this point I can weather a steep decline but if my greed and poor strategy selection led to accelerated losses the mental toll wouldn't be worth it. Not to mention the look on my wife's face each time I mentioned I was considering this. If it failed I'd never hear the end of it (although she wouldn't notice unless I showed her)
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