Market Movements

^{*Weekly Return is calculated as market open of the previous Wednesday, to market close this Tuesday (yesterday); Current Level is Tuesday’s (yesterday’s) close.}

Weekly Rollout

• What has the market been up to lately?

• Cash holdings are very low. How has this played out in history?

• If dividends weren’t enough, this is a way to juice income. Yes, please.

• There is a sell signal that indicates that the market might plunge.

• Could now be a good time to sell puts on NVDA? JP Morgan thinks so.

• The Fed cuts rates, quantitative tightening ends? What’s next.

• The NASDAQ wants 24-hour trading. Your circadian rhythm disagrees.

“Good-To-Know’s”

This bias shows up constantly in markets. After a strong rally, investors assume stocks “only go up.” After a sharp selloff, fear takes over and risk feels permanent. The problem is that markets are cyclical, but recency bias convinces us the current environment is the environment.

For option sellers, combating recency bias means sticking to defined rules around position sizing, strike selection, expiration management, volatility thresholds, etc.

The strategy needs to work across many environments, not just the one we’re in now.

Quote(s) I Like

Thought Throttle

With Christmas right around the corner, “passive income” content has been all over my feed. I assume you are in a similar situation.

Maybe it is targeted at people looking for extra income for the holidays. Either way, people can’t seem to get enough of the term “income.”

Dividends in particular get most of the attention in the “income” category of investments. They’re simple, visible, and usually consistent. Cash shows up in the account and nothing feels like it had to be done to earn it.

But dividends are only one form of income. And for investors willing to be slightly more involved, they are far from the ceiling.

When you buy a dividend-paying stock, you are already holding the core ingredient needed for another income stream.

The core ingredient? Ownership.

This ownership can be monetized in more than one way. This is where covered calls come in.

A covered call is the act of selling someone else the right to buy your shares at a predetermined price, in exchange for an upfront payment. The upfront payment—also called the option’s premium—is income collected immediately.

If you are unsure of what a covered call is, check out this article:

At a high level, you’re agreeing to part with your shares at the option’s strike price (ideally, a higher price than the current price) if the market gets there. In return, you get paid now for making that promise.

Unlike dividends, which are fixed by the company, option premiums are priced by the market. Some weeks the income is small. Other weeks it’s meaningful.

And the best part? Selling covered calls doesn’t replace dividends.

It layers on top of them. You still collect the dividend. You simply add a second income stream by temporarily renting out the upside of your shares.

There is, of course, a tradeoff.

When you sell a covered call, you cap your upside beyond the strike price. If the stock rips higher, you don’t fully participate. That’s the cost of getting paid today instead of relying on tomorrow’s appreciation or growth.

But that tradeoff is intentional. Covered calls aren’t necessarily about maximizing potential upside. They’re about converting uncertainty into cash flow.

In calm or sideways markets, covered calls can meaningfully outperform dividends alone. In strong bull markets, they may lag.

This is why covered calls work best when they’re used deliberately, not reflexively. The goal isn’t to sell calls blindly. It’s to sell them when the premium justifies the risk of being called away.

Dividends are income by policy. Covered calls are income by decision.

For investors who already own dividend stocks, covered calls may just be the logical extension of ownership.

To All Readers…

One of the hardest parts of putting together each edition of Theta Throttle is deciding what to write about. Seriously—if there’s a topic you’re curious about or something you want me to dive into, just reply to this email. There’s a very good chance it’ll become its own edition. Let’s build.

Trade Mechanics

NextEra Energy (NEE) is a U.S. utility company with a strong focus on renewable energy and a long history of raising dividends. The stock currently yields ~2.7% and sits at about $81.32 per share.

To enhance that income, we can layer in a covered call. The cost of 100 shares of NEE is currently $8,132. Selling the January 16, 2025 $85 call for $0.86, or $86 total, generates a 1.07% return in roughly 31 days. This is about 13.3% annualized, assuming the option expires worthless.

If NEE rips above $85 by expiration and the shares are called away, they’re sold at $85. This would produce a total return of about 5.6% for the period. This doesn’t even add the dividends into the equation. Powerful stuff.

The main risks are a decline in the stock price or missing upside beyond the strike. Covered calls work best in stable or moderately bullish markets, where income matters more than chasing large moves.

This is for educational purposes only—not a trade recommendation. Remember to always do your own due diligence and consult a financial advisor before making investment decisions.

To All Theta Throttle Subscribers…

A lot of you have been reaching out, asking for more on stock selection tips and things to look out for. I’m considering putting together a downloadable guide that breaks down the essentials in plain English.

If that’s something you’d be interested in, let me know by replying to this email or by subscribing if you haven’t already. The more interest I see, the faster I’ll prioritize building it. And as always, sharing this newsletter with a friend who’s curious about options goes a long way in helping us grow.

And yes, this guide will be FREE.

Got any questions or comments? Feel free to reply to this email—we’d love to hear from you!

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Disclaimer

The information provided in this newsletter is sourced from reliable channels; however, we cannot guarantee its accuracy. The opinions expressed in this newsletter are solely those of the editorial team, contributors, or third-party sources and may change without prior notice. These views do not necessarily reflect those of the firm as a whole. The content may become outdated, and there is no obligation to update it.

This newsletter is for informational purposes only and does not constitute personal investment advice. It is not intended to address your specific financial situation and should not be construed as legal, financial, tax, or accounting advice, or as a recommendation to buy, sell, or hold any securities. No recommendation is made regarding the suitability of any investment for a particular individual or group. Past performance is not indicative of future results.

Options come with inherent risks. We strongly advise you to consult with a financial advisor before making any investment decisions, including determining whether any proposed investment aligns with your personal financial needs.