Selling Covered Calls as a Low-interest Loan

One strategy mentioned in the post is using the subsidies provided by the Affordable Care Act (ACA) as a low-interest loan. The individual can claim a lower income on their ACA application to qualify for higher subsidies on their health insurance premiums. This effectively allows them to receive an interest-free loan from the government that they can repay when they file their taxes.

ACA Subsidies and Income Reporting

Under the ACA, individuals with incomes below a certain threshold are eligible for premium tax credits, which can help reduce the cost of their health insurance. When applying for these subsidies, individuals must estimate their expected income for the year. If the actual income exceeds the estimated amount, the individual may have to repay some of the subsidies they received. However, if the income is lower than the estimate, the individual may be eligible for a refund of the excess subsidies.

Covered Calls for Income Generation

Another strategy mentioned in the post is using covered calls to generate income. A covered call involves selling an option to buy a stock that the individual already owns. If the stock price remains below the strike price of the option, the option expires worthless, and the individual keeps the premium they received for selling it. If the stock price rises above the strike price, the individual is obligated to sell the stock at the strike price, but they also get to keep the premium they received for selling the option. By selling covered calls on a regular basis, individuals can generate a steady stream of income while potentially limiting their downside risk.

Write Cover Calls

To write covered calls, an individual needs to have a brokerage account and shares of the underlying stock. They can then sell an option to buy a certain number of shares of the stock at a specific price (the strike price) on a specific date (the expiration date). The premium they receive for selling the option is their potential profit.

Rolling Out of the Money

If the stock price rises and the option is at risk of being exercised, the individual may choose to “roll out” of the covered call. Rolling out involves selling the current option and buying a new option with a higher strike price or a later expiration date. This effectively resets the individual’s obligation to sell the stock and gives them another chance to profit from the stock’s continued appreciation.