The tweet below from a covered calls “expert” highlights the exact dangers of using Covered Calls and Cash-Secured Puts on the wrong stock. I’m not naming the person who wrote this in 2021 because it wouldn’t be fair, as I’ve made my share of bad picks too. However, the issue wasn’t so much the stock itself but rather the application of a long-term option selling strategy to it.  It was terrible advice and illustrates a critical point about selling options: whether you’re a trader or an investor, the quality and stability of the company matters significantly to this strategy. And this has nothing to do with hindsight as you'll see. The author described SQ as a promising company in digital payments. True then as it probably is now.  It may have had strong prospects, but in 2021, it had surged by hundreds of percent to a P/E ratio of over 400. Despite rising earnings during the pandemic, its cash flow was highly erratic, and it was undeniably a high-flyer with a nosebleed valuation. Enter the covered call strategy. The author suggested that while dividend stocks are fine, covered calls are a better path to financial independence, especially for those without enough savings to rely on traditional dividends. Option premiums on stocks can indeed exceed traditional dividends.  He says that covered calls are 4 times better than dividend growth investing.  Ok. Wow. A few key points to remember: 1.     This advice risked pushing people out on the risk spectrum without acknowledging (or being aware of) the dangers of doing so. 2.     Yes, options can create yield on high implied volatility (high pricing) stocks that don’t otherwise provide yield. However, many no-yield stocks are more speculative and prone to volatility. Selling calls simply doesn’t transform these stocks into better companies and comparing them to dividend payers is misguided. 3.     Dividend stocks offer yield while allowing investors full upside in the stock. With covered calls, you retain much of the downside but only some of the upside. The performance profile is drastically different. You might argue that even quality stocks can get hit hard, as seen in 2022. True, but quality companies typically recover. They have better chances of stability and recovery, while speculative, cash-flow-poor companies may plummet to zero or languish as dead money for years. For instance, SQ fell over 80% following his recommendation and has only slightly recovered, still around 70% below his recommended level and roughly the same price it was at over two years ago. In contrast, quality balance sheet, high cash-flow, wide moat and higher margin companies have generally thrived since 2021. You might think you can sell premium on the way down to defend, but selling calls on a rapidly declining stock often still results in poor capture. You also risk losing your position below your cost basis, and the absolute yields you harvest won’t be as lucrative as before. This is crucial and often overlooked. If SQ options yield, say, 30% a year in the at-the-money options: 30% on $70 is much less than 30% on $233, assuming implied volatility remains similar. Your income drops to a third of what it was and you principal has been decimated. How’s that retirement plan going? This underscores a significant issue with covered calls, and the crux of the takeaway today: you’re creating a bond proxy on a product that has full principal risk. Unlike a bond, which guarantees your principal at maturity, a covered call on a stock has no such guarantee. Your principal can drop to near zero in theory.  This strategy is not to be looked at as a kind of secure bond, as I fear so many do. But it can  be approximated to a bond-like approach if certain strict conditions are met. We must strive to ensure our principal is preserved long-term. But that means prioritizing quality is paramount. Quality companies should endure and bounce back, though we can never be 100% certain.  There is however a great deal of evidence that higher profit and high free cash flow companies outperform over time by a fairly significant margin. For example high free-cash flow companies tend to outperform the rest by around 18% per year. High gross margin companies tend to outperform by 3-4%. Selling puts in quality names has outperformed by a wide margin. Will you get less premium for those names? Probably. But are you in the business of trading for excitement or are you in the business of actually retaining premium and making money over time. You decide. The dangers of following ill-informed advice, especially on social media, are very real.  Make sure you’re following the right people. People with almost 30 years of having done this professionally, managing a $billion in options strategies and having generated $750 million in options cash flow for investors. That's me. And the best part? You can learn to do this... Like and follow and check out the Cash Flow Insiders Program. It covers topics discussed here: rules, guardrails, gauging market and stock sentiment and quality, using option deltas as a tool to trade reality rather than hope, finding edge, and avoiding pitfalls. It offers frameworks for handling volatility, managing options, retaining upside, and more—essentially, how to trade and manage like a professional. Membership includes 5 weeks of live and group mentoring from me (one-on-one mentoring available for $5000 for 3 months as well), the 20+ module CFI video class, the 99 module 16-hour Gamma Option Mastery course ($797 value), the Nomad Iron Condors Course, the proprietary MTI sentiment indicator, tools, scans, and last but not least… 3 months access to the best options trading and investing Discord community around,  a supportive and growing group of smart traders working together to improve each and every day (Priceless value). Enjoy scans, paid services for free, trade ideas (huge wins last week), education, comprehensive charting packages, weekly live Q&A with me and special guest experts. It's like having a pro look over your shoulder. Join the Cash Flow Insiders Option Crushing and Investment Program . It starts January 30 so check it out:  Go to the Enroll Now tab .  We can also send you a Paypal invoice if you prefer. Alternatively reach out to Natasha to schedule 15 minutes with me . NO pressure - that's not how I operate. I'll tell you about the program, give you a great offer, and you decide. Students have called the program "extraordinary" - it speaks for itself. info@cashflowinsiders.com Hans CEO

With Halloween around the corner I can’t help but feel that the VIX is currently a 12 dressed in a 20 costume!  VIX is now TRIPLE realized volatility, otherwise known as ACTUAL market movement.  So while the broader market is experiencing very little movement, fear gauges like the VIX are very high.  And rates volatility?  Even higher.  Bond volatility is about as high as we’ve even seen it ahead of an election.  Why?  Well, take your pick… pivotal election, pivotal FOMC meeting, and just maybe… pivotal amounts of debt.     Since the Fed cut rates by 50 basis points we’ve seen rates going nowhere but up.  The 10 year yield has soared from 3.70 to 4.25 – an almost record move.  That is not a rates market that is on the same page as the Federal Reserve.  But this isn’t news to me.  As I’ve been saying for months, the risk is not that the economy slows or that employment rises, it’s that inflation begins to rear its ugly head again.     Markets are stable this morning as GOOG didn’t disappoint.  That’s a good sign for the ad spend world and that is pushing META close to 600.  Our risk reversal trade from last week?  Almost a home run at this point.  In at $1.25, we took off half at $13.40 yesterday.  At 600-605 I will sell the remaining.  But my data is showing that Mag7 is still very underowned and I’m looking for further follow through as the year winds to a close.     Leading Economic News Coming Out This Week   Yesterday’s consumer confidence numbers were MUCH stronger than expected.  While this is positive for growth in general it once again dismisses any hard landing talk.  The labor market remains in very good shape and in fact is improving.  But that also highlights my main concern which is that the Fed is stimulating an already strong economy while budget deficits rage on.  Neither Presidential candidate seems to care about profligate spending.  At least not until they get into office.  Hence, high rates volatility.  Markets will be watching each and every data point from here on in.  We need that rates vol to break lower for markets to breathe a sigh of relief.  You can watch it yourself by looking up the MOVE index.   GDP numbers a little weaker than expected but job creation much higher. Personal spending and PCE inflation numbers coming and then non-farm payrolls and the unemployment rate on Friday.  Oh, and throw in manufacturing data for good measure to round out a massive week of data and earnings.  But again, markets have been incredibly stable in the face of all this…. as they await the even bigger events of next week.  It’s feeling like a few Super Bowls back to back to back.   Quality Watchlist   Our trades are thriving, with the aforementioned META position killing it.  At $563 my target was $613 – we’re already near $600 and the darn earnings aren’t even out yet.  COIN continues to print coin.  Our MARA call is doing well although it pulled back yesterday.  Covered calls in UBER and Palo Alto continue to bake off nicely.  UBER earnings are this week as well so we’re watching for that – I’m not a huge fan of selling premium into earnings.   I’m looking to strap on an upside butterfly in MSFT if things line up nicely.   Recent Winners   The BABA condor is working nicely – I wanted to cover my short 155 call but instead took the opportunity to pick up a Dec 130/145 call spread for almost the same price.  This gives us massive upside if China decides to go for another run higher, which it will in due course.  Our HOOD cash-machine trade continues to print.  CELH puts are under threat but Micron cash-secured puts are looking good for a profitable close soon.   Our SOFI sale a week ago above 11 was inspired as the stock fell to 9.75 on earnings.  But I’m looking closely for another upside play here.   Our MCD downside fly is sitting pretty – we took off half for a 45% win in 2 days and the rest is on the cusp of doing even better.   But I may have to take it off if I don’t get the move down to $285 that I’m hoping for. For our amazing courses and programs check out www.crushthepremium.com/training which includes access to our amazing trading community where you get trade ideas and massive other value!

The market is acting like a 12 VIX but VIX is pricing much much higher. That throws your brain for a loop but what it likely means is that stocks will continue to bounce off of 1% selloffs like any normal low vol market. That is great for premium sellers who are harvesting implied option levels that stocks never come close to realizing (ie options overpriced). Something's gotta give. If Trump pulls ahead more that could mean a happier market with VIX perhaps coming under pressure. But as it is, we've gone from a period mid-year where NO one wanted protection, to one in which people are overhedged. Aug 5 and early Sep were "events" that are partially responsible for keeping risk pricing up. So is that high fear a sign of bad things? Not really. Folks are long, and getting longer (CTA, vol targeting, upside Gamma void, underinvesting, seasonal...) and have to be protected. So they're paying up. Fact. I get into all that here: https:// youtu.be/GfLxTNBDrqY

What I often do with my students is figure out: where is the blind spot? This is the moment where you don't see or don't want to see something important. In my decades of watching, managing and being an options trader the ball is usually dropped at the "transition" point. The transition is the moment where things change in a meaningful way. Where the picture morphs into something different. Where recency bias wants to prevent you from doing the right thing. Look at A and B in the picture. "A" feels really easy when you're in it. You're collecting put premiums one after another, like taking candy from a baby. When the trendline is broken and B starts to happen, all you can think of is how easy A was. And that recency bias of being right makes it difficult to accept that you might now be wrong. You tell yourself that if the stock can JUST GET BACK to where it was in A you'll get out. The transition is hard. It's where you've made 5000, but potentially need to give back 1500 in order to complete the campaign. Yes, a loss is often the last inning of a good campaign. And the blind spot is where you don't want to accept taking that loss. And because of option selling negative convexity you give back all 5000 and maybe another 5000 on top of that. And that is why some traders just can't get ahead. It stairs up but elevator down if you're not looking at this the right way. Watch for the transition, and don't let it be your blind spot. Click here for my lecture on Mindset if you want to know more about why blind spots are even more important to recognize when selling options.

Is there free option decay to be made on weekends?

People reach out to me all the time. Some are frustrated with their trading. Some want to learn new skills. And some are looking for magic - a special approach or an indicator that will deliver swift untold riches to them. I've managed a $billion in options strategies in my time so they figure I must know something top secret. I ask them... Do you think trading magic really exists? Look at hedge fund performance. Some firms with dozens of 180 IQ MIT quants on the payroll... result? Nothing special for the most part, and often pretty mediocre. Newsflash. There is no magic in trading and investing. Sure, there is some embedded edge in options markets that you can target if you know what you're doing. But in the end, only discipline and a consistent sensible approach that aims to reduce emotion and keep you doing more of the good stuff is what it takes. Because you can either follow rules and guardrails or you can fly by the seat of your pants. You can trade what you think should be happening or you can trade what is actually happening. You can trade for excitement or you can trade to make money. You can keep thinking you're smarter than the market, or you can wait for tailwinds and setups that make sense. Should you take on risk? Absolutely. Plenty. But sensible and well-thought-out risk is very different from a lot of what I'm seeing out there these days in trading-land. If you want magic, good luck in your quest. If you want a sensible set of rules combined with volatility-based guardrails that keep you doing more of the right things and less of the crap ones? Reach out. I also may know a card trick or two. www.gammacapitaladvisors.com hans@gammacapitaladvisors.com

I talked about this chart in my newsletter last Wednesday before that pivotal CPI number... and that is exactly what has played out:  "If tomorrow's CPI inflation number comes in lower than expected and breaks this chart down, we could start to see a stronger broadening of stocks, with Mag7 taking a breather." Sep rate cut is just about a lock and even December is favored.  The real-world part of the market is doing great - stocks like Home Depot, DH Hortons (home builder), even regional banks doing great. Coffee, energy, beauty products. We're hiding in some tech like Uber which I think is "safe" tech, but for now the A.I. party is over, especially with ASML delivering so-so guidance and reports of Trump getting tough on Taiwan.  Small caps? According to Bespoke Investment Group. “History was made today. The Russell 2000 closed 4.4 standard deviations above its 50-day moving average. No other major US index (Dow since 1900, S&P 500 since 1928, and Nasdaq since 1971) has ever closed at that much of an extreme,” the firm said in a post on X. What to make of a move like that? Yes, some retracement is warranted, but massive high-volume moves like that are to be respected. A sea change could be upon us so keep an eye on forgotten stocks in the "real" economy. They've been forgotten for too long and with aggressive rate cuts on the horizon, as long as growth doesn't slow too much the Roaring 20s narrative may continue to play out. Need help with option overlays?  Reach out. hans@gammacapitaladvisors.com

Sign up for the Newsletter HERE! The S&P500 MTI remains strong green and the equal weight is mild green but about to firm up on that massive "everything else" breakout.   Market Musings   Wow, did you see what happened since my last newsletter?  I wrote this to you on Wednesday: "If tomorrow's CPI inflation number comes in lower than expected and breaks this chart down, we could start to see a stronger broadening of stocks, with Mag7 taking a breather." Thursday was a banger as this played out exactly as mentioned with Mag stocks getting crushed while broader market stocks had a phenomenal day.  Friday brought a slightly strong PPI number but it didn't matter - the sea change that I mentioned was ON.  When the Pamplonian bulls start running it's hard to stop them. Mag slid further and we saw continued follow-through in laggard and small cap stocks.  Everything interest-rate sensitive went bananas, but it was really an everything-rally with bitcoin miners, payment processors, home builders and home improvement, solar, banking, coffee, beauty products and retail.  Even what I would call "safer tech" did well:  ride share, cybersecurity (crooks ain't going away).  Guess what trades we're up on?  All of those. The real-economy stock market responded as the prospect of lower rates bodes well for consumers who need a boost of confidence (University of Michigan sentiment at 8 month lows).  Lower rates are huge for stocks, as long as it's about falling inflation and bringing down real rates (rate levels over inflation).  If the Fed can engineer a mere softening in the econony versus a harder landing... well this could be another Roaring 20s in the making. Could be.  All eyes will be on economic data from here on in. What did we do in the community this week before that Mag7 selloff? I kid you not, we hedged our tech big time and covered short puts in names like AMZN ( all trades posted in the CFI Discord community).  And then added trades in HD, DHI, KRE, to already great ones in ULTA, SBUX, DDOG, DOCU and INTC.  Yup, out of the wrong places before the drop and into the right ones.  It doesn't always happen that perfectly but hey we'll take it. We are killing it in the CFI Discord community with incredible insight, education and trades.  I feel uncomfortable mentioning these trades because I don't like sensational emails like this. But I had to say something because the value in the CFI program keeps soaring... Yesterday alone:  TSLA put sale: up 37% in two hours, (after capturing 66% on a trade last week).  Closed DHI and HD in one day for 39% and 36%. META massive covered call hedge up 50% in 3 days (yes we hedge too) AMZN cash-secured put up 64% in a week And a bunch of open positions sitting on nice profits: DOCU long calls up 19%, INTC long calls up 15%, KRE long calls up 5%, AAPL covered calls up 3.5%, ULTA up 7.3%, and XLE (energy) put-sale up 55%. Many other positions up money: CLSK put sale, UBER, DG, DIS, VST, SBUX put sale.  Our only loser was ABNB which we closed for a small loss that is utterly dwarfed by the wins.  The key is we follow the rules and guardrails.  Remember: work smarter, not harder.  But we do both so that helps... But notice something about those trades?  Not just tech and semiconductors.  It's an extrememely broad basket of themes - because there are great trades to be made all over the place, and concentrating on the 5 stocks that everyone else is trading cpuld be dangerous.  Our job is to do better. This is just an amazing community with charting, economic news and calendars, scanners that you can copy and set up.  I pay for great services and tools that are available to you as a member, forever.  There's something for everyone in there and you could be part of it too with a lifetime membership by enrolling in the Cash Flow Insiders Program (incredible coupon below in this newsletter). And the July23 program is the LAST time I will be throwing in my Gamma Options Trading Mastery 16 hour video course for free.  This is listed at $797 and students have raved about it.  Included. Plus an hour of one-on-one with me to go over the concepts. In the end you get 6 weeks of live mentoring for a few hundred bucks when you back out all the extras (!). And when you've completed the 6 week premium-crushing program you'll continue thriving in the Discord (you get into the Discord right away when you sign up though!).  You'll keep learning from me and the other incredible contributors.  Think of it as an amazing ecosystem of support to give both long-term investors and shorter-term traders the support they need to excel (yes I also look at quality long term holdings - I can't help it - I managed hundreds of $millions in listed ETFs that focused on long stocks+options edge) . In the community I host a once a week live Q&A/education meeting to continue to talk about the CFI concepts, markets, rules, trades and more. You'll never stop learning.  Code 50off at checkout.. . but read on for Pro Tips (BTW I made tens of millions as a pro options market maker for 12 years and pro options fund manager for 13 - $1 Billion managed).   Pro Tips   People have been asking me about my META in-the-money covered call trade from this week.  It's about using the levers available to us to create effective hedges that ALSO generate options income.    Adjusting the delta on our call sales allows us to do something amazing: convert our long position into more of a cash-secured put sale.  This has to do with synthetics, which I teach in the program, but you don't have to worry about the geeky explanations beneath the surface, you just have to learn how to do it.   For example, when you're long a stock and you feel it is topping-out based on perhaps a trendline, target reached or other edge, you adjust your call sale delta higher to reflect a hedge that makes sense for that stock.  If the stock keeps going?  You crush a little premium for option cash flow.  If it comes down you actually get a decent hedge for a change.   We killed it on this hedge at exactly the right time, protecting $18 of META's drop, which we covered Friday morning in the Discord chat.  We even re-hooked a new call sale for extra call income on the intra-day bounce.    Again, play with delta - it's one of the great levers at your disposal.  And it's one of the many tools we use in the CFI system.   Next program starts July 23.  It will change the way you approach trading, I promise.    Hope to see you on the Inside.  See below for a SPECIAL OFFER.   ---------------------------------------------- The Cash Flow Insiders Live 6 week mentoring program for learning to crush premium but also targeting upside.  I'm Hans and I've managed almost $1 billion dollars in these kinds of strategies, having generated over $750 million in options cash flow for investors around the world.   It's perfect for complete beginners because it includes a full beginner options boot camp AND my $797 Gamma Options Mastery video course thrown in - which aims to teach how to go from a beginner to pro trader!   As a newsletter reader you'll get 50% off Sale with coupon 50off at checkout, or email us to have a Paypal invoice sent to you.   I've seen "Option Boot Camp" programs for 5  TIMES the price that pale in comparison to what you get here.   I will be raising the price of the program significantly in the fall so give it a try now for an unbelievable price - starts July 23 so don't delay and lets get learning and winning .  Use Coupon 50OFF   info@cashflowinsiders.com   Or schedule a 15 minute call with Natasha or Hans to ask questions.  ZERO pressure because that's just not how we operate.  The program speaks for itself and the reviews are phenomenal.   www.cashflowinsiders.com   Private coaching with me is also available but only 1 mentoring spot left for July and 2 for August.  Individual lessons to learn CC and CSP as well.   Reach out to Natasha at info@cashflowinsiders.com with any questions at all.  This is a solid commitment of time and resources so it isn't for everyone - find out if it's a fit for you.   www.cashflowinsiders.com

Folks love to sell puts in persistent market rallies. Makes sense:  they tend to go to zero. But what has better overall success in a bull market, put sales or covered calls? You might be surprised to find out.  Selling an out-of-the-money call (OTM) against stock is net “longer the market” than selling an out-of-the-money put. By a lot. Let’s use deltas to illustrate. Recall that delta gives you a good idea of how your position will move versus the underlying stock movement.  When short an OTM put I might be long around 25 deltas (remember long stock is long 100 deltas).  But when long a covered call I might be net  long around 75 deltas, which is 100 deltas on the stock, less 25 deltas for the short call.  So, overall the short put is going to act like +25 shares, and the long covered call position is going to act like +75 shares.  Now do you see which one can make you more money?  Longer deltas = better upside in a strong market.  This happens because being short an OTM put is really a more neutral (slightly up, slightly down) trade.  Yes, I know, the textbook says it’s a bullish strategy…don’t worry, that’s why you’re listening to a pro 🙂. So why do people love to sell OTM puts in bull markets? Because it feels good to be right, and selling puts that go to zero offers a high hit rate.  The difference is that with covered calls, even though your call strike will get run over every now and then, the overall combination of long stock and short call is set up to do better when stocks are strong. Our Cash Flow Insiders Investment System takes advantage of this. Check it out.