119. Make 20%-100% annual return on your money - "riskfree" covered calls - options collars
For those who are familiar with options trading, trading covered calls against a long stock or ETF position can be more rewarding (annual yields of up to 100% or more) than simply investing in dividend stocks, although one needs more active trading/monitoring.
To implement regular covered calls, one simply has to sell (monthly or weekly) calls against their stock position and if the stock appreciates, so will the call, but the investor achieves monthly income (from the call premiums), which may be 2-5% per month.
However, the downside can be that the stock tanks, price drops further than the value of the sold call has to offer, and thus risks for turning the investment into a loss (for that week or month)
The solution to cover the downside risk is by buying a (longer-term-dated) protective put option (like a 6 month put option) while selling covered calls against the long stock position.
The longer-term-dated put option will protect the stock from losing value, at the same time, because it is a longer-term-dated put option, the premium (price of the put option) is relatively lower than the the call premium(s) sold (on a weekly or monthly basis), so the end result is a hedged position (short call+long stock+long put), called an "options collar", that theoretically (in most cases) cannot lose money and makes a high return (usually 20% to as high as 100% per year)
Trading a covered call / protective put combination can be a great way to harvest many of the benefits of a covered call while maintaining fixed risk to the downside. This strategy combines two of the most common uses for options, both of which are focused on protecting against losses while still providing an opportunity for profits.