Am I being too optimistic that I can generate more than 4% using covered calls and selling puts on well known, stable, blue chip companies?
Anybody uses options to supplement their retirement income?
If so, how have you done? What is your long term success rate?
I’m in the process of figuring that out myself.
The big difference is that I don’t trade Blue Chips. Don’t know if that would work. However, if you’re only looking for 4% or so, it might.
I’ve been trying different trading philosophies since 2020 that are centered around covered calls. I’ve done pretty well except in 2022 when the FED was raising rates. It doesn’t work very well in a tanking market.
I added cash covered Puts starting in 2023. For the year I was up 52%. I sell Puts on the stock(s) of choice until I’m assigned shares. I then turn around and sell Calls until they’re called away. I sell on a short time frame. I sell on Monday with an expiration date of the same week.
I think if you sell on a longer time frame than I do that it could work.
The first step to any endeavor is to educate yourself.
- The “4% withdrawal rate” has almost nothing to do with “generating more than 4%” from your investments. The two are only tangentially related.
- The “4% withdrawal rate” rule of thumb applies to a 60/40 portfolio (or a XX/YY portfolio as long as the YY% can cover at least 5 years of living expenses), it doesn’t apply to a covered call/selling puts portfolio.
- One of the problems I have found with covered calls or selling puts is that it isn’t easy to keep the money deployed at all times. That means that there will be times in which it isn’t deployed and only earning roughly at the current short-term treasury bill rate.
@captainccs does this regularly for a big chunk of his retirement income. Read his myriad posts about covered calls. If anyone here is an expert on covered call selection, it is indeed him.
Every year or so, after the next set of LEAPs begin trading, I sell a bunch of put options on strong companies. Most years they eventually expire worthless, but every 4 or 5 years they don’t. I mentioned this in a post yesterday or the day before. In September, when the Jan 2026 LEAPS began trading, I sold a few put options, among them, the Apple Jan '26 125 option. To me, that’s a rather conservative trade as I outlined in that post.
I get what you are saying.
I guess the question is active management vs passive management of withdrawals of retirement funds.
Let’s take the retiree who has accumulated $1,000,000.
He/She could just put it in a target dated fund 60/40 mix and take out 4% a year.
they could manage that $1,000,000 and use that to trade covered calls/write puts to try and generate more than $40,000 per year for income…
or, 3rd and not high on the list
Buy a Index Annuity that would pay a guaranteed income for the rest of their life
I was looking at option tables yesterday and decided we could test your question / idea.
This exercise is paper trading only. Here is what I came up with.
Blue Chip Stock - I picked Apple off the top of my head. I decided to check what the options were trading at and see if that put you in the ball park.
Apples price at the time yesterday was $183.55
I picked a Put to sell with a strike of $175 and expiration date of Feb. 2. The bid price at at the time was $1.95. For arguments sake and to be conservative let’s say that we actually sold it for $1.91.
So… You would have to have $17,500 cash in your account until Feb. 2. In return you would receive $191.00 minus commissions. I’m going to apply what I pay. Your net income would be $190.34. From a percentage standpoint it would be 1.09%. That translates to 20.6% annually. If your theory is correct, it’s unlikely the stock price tanks, this could do much better than the 4% you were looking for.
I’ll check in after the put expires and let’s see how it does.