Income Strategy: Consider Covered Calls on Large Holdings like $ROBN (Hood).

Based on the recent discussions, including user "Hoodigan's" experience with $ROBN and covered calls, here's a recommended investment plan for a covered call strategy:

Investment Plan: Covered Call Strategy

1. Eligibility & Context: This strategy is ideal for investors who own shares in multiples of 100 (per contract) of a specific stock. For example, users with substantial positions, like those in $ROBN as highlighted by "Hoodigan," can use this to generate income.

2. Understand Mechanics: When you sell (or "write") a covered call, you're giving someone else the right to buy your shares at a specific price (the "strike price") on or before a certain date (the "expiration date"). In return, you get a payment called a "premium." If the stock's price is above the strike price at expiration, your shares will likely be "called away" (i.e., sold at the strike price).

3. Strategy Goals & Outlook: Covered calls are typically used by investors who have a neutral to slightly bullish outlook on the underlying stock. The main goals are to generate income from the option premiums and potentially lower the effective cost basis of the shares held. You should be okay with selling your shares if they reach the strike price. As "Hoodigan" mentioned, "Exactly what I've been doing. Working so far," this strategy can help meet income-generation goals.

4. Risk vs. Reward Profile:

   • Reward: The premium you receive is yours to keep, providing an immediate return or a buffer against a small drop in the stock price.
   • Risk: Your potential profit from a rise in the stock's price is limited. If the stock price surges significantly above your strike price, you won't benefit from those extra gains beyond the strike price (plus the premium received). If the stock price plummets, the premium might not cover the loss in your shares' value.

5. Application to Volatile Stocks (e.g., $ROBN):

   • Opportunity: Highly volatile stocks, like $ROBN (which has seen its price move from "$9 two years ago" to around "$57"), often come with higher option premiums. This makes selling covered calls more profitable in terms of income generated. With a large number of shares, you can make quite a bit.
   • Considerations: Higher premiums reflect higher risk and greater uncertainty about the stock's future price. There's a higher chance the stock could make a sharp move, either rising well above your strike (leading to shares being called away and missing further upside) or falling significantly. The comment "Careful with that cost basis, might revisit soon" highlights this.
   • Active Management: Regularly monitor your positions. Be ready to manage your covered calls, which might involve:
     • Allowing the shares to be called away if the option expires in-the-money.
     • Buying back the call option (ideally for less than you sold it) to close the position if you want to keep your shares or if the option's value has decreased.
     • "Rolling" the option: Buying back the existing short call and selling a new call with a later expiration date and/or a different strike price to continue generating income or adjust your position.