3- Outline

How to Use This Book

I had a semblance of intelligent design when I laid it all out; here’s the underlying logic:

First, the thought map I made before I started writing. It went through about a million changes:

Pace and Pueo

You might notice at first that there are a large number of chapters, but you’ll notice just as quickly once you start reading that most of them are brief and digestible. My vision was something you can read, at your convenience, at your pace, and come back to as a reference whenever you need to.

If you work your way through it all, you should have all the skills and preparation
necessary to do some portfolio overwriting.

You’ll also notice most technical chapters feature only one or two examples, but they are covered in depth. I want to conversationally explain everything at a pace conducive to learning with some fun pictures here and there.

There will be lots of technical pictures as well. There already exists a glut of educational material featuring intimidating blocks of text that I feel are a hurdle to most people. Those sources are great places to get other perspectives and more examples after learning solid foundations here.

If you want to learn to swim jump in the water. On dry land no frame of mind is ever going to help you.

Bruce Lee

The Path

The chapters take you through the basics of what an option is, and how to understand options, specifically how to trade covered calls and manage positions. Learning the basics of what a covered call is and how to sell one is simple- a quick internet search will give you the basic idea.

The complicated part all happens after you initially sell a covered call.

One could learn the basics and how to sell a call very rapidly, and most brokerages offer video tutorials online.¹ Unfortunately, like most things, it’s not as simple as it seems.

The call you sell, like a stock, changes in price over time in tandem with the underlying stock, and you have the ability to trade it up until expiration, buying back the initial call you sold, or
rolling² it into another call. This is called “position management”, and the topic comprises much of the latter half of the book.

As a portfolio overwriter, you can be as active or passive in this endeavor as you desire.3 Some portfolio overwriters frequently trade calls with the aim of locking in gains and generating more
premium at every possible opportunity. Others just take a few minutes and sell calls every month or two, taking a more passive and less time-consuming approach. Wherever you fall on this spectrum, the lion’s share of skill and knowledge lies in position management, and you need to know how to competently perform it- mainly because it is easy to lose money here if you don’t understand what you are doing.

An Index Bias

I’m writing mostly from the perspective of how to portfolio overwrite a total stock index (if you don’t know what this means, don’t worry!) because I’m gearing this all towards my FI crew, but this
book would also be useful to anyone who trades individual securities and wants to know how to sell covered calls.

Portfolio overwriting is a very specific goals-based strategy when it comes to selling covered calls, aiming to sell calls against shares you would like to hold long-term and would prefer not to sell. But there are other ways to invest with covered calls, and this book is a comprehensive introduction to selling covered calls in general.

After reading this book, you will not only understand portfolio overwriting against indexes, but also have a strong basis in call options (and options in general) that will allow you to explore other avenues with confidence and ease, if you so desire.³

Bonus Material

There are also some ancillary chapters: some that directly explain technicalities and some that give a more holistic sense of what I’m up to and why, as well as some (hopefully) insightful thoughts on
how I view trading in general. They are, imho, the most valuable ones… but that’s just like, my opinion, man.⁴

There’s a main series of articles that take you through the basics of what an option is, and how to understand them, including how to trade them and manage positions. I’m writing mostly from the perspective of how to portfolio overwrite a total stock index (if you don’t know what this means, don’t worry!), because I’m gearing this all towards my FI crew. However this website would be useful to anyone who trades individual securities. It’s a thorough intro to call options in general. 

There’s also some ancillary articles: some that directly explain technicalities and some that give a more holistic sense of what I’m up to and why, as well as some (hopefully) insightful articles on how I view trading in general. They are, imho, the most valuable ones… but that’s just like, my opinion, man. 

Next- Article 4: Ways To Think About Options

Previous- Article 2: Why You Should Care

1. I recommend learning the how-to nuts and bolts of what to click or tap when selling a call via your brokerage’s website or educational materials, as they are all very simple but have slightly different interfaces. [↩]
2. Rolling is buying-to-close your current call and simultaneously selling to open another, effectively “rolling” your contract into a different trade. This is covered in-depth in future chapters, as it comprises a large majority of portfolio overwriting. [↩]
3. I have in the past, but it is extremely time consuming, stressful, and difficult. The fact that I consider myself a ”reformed” active investor and almost entirely adhere to index investing with some portfolio overwriting as described in this book should be telling to the reader about what I’ve found works, and more importantly what is worth my time. [↩]
4. The Big Lebowski is one of my favorite films. I’m even a certified Dudeist Minister if anyone reading this needs their pets married (I don’t ordain human covenants- too many ins and outs, and what-have-yous). If you’d like some awesome Lebowski art check out Chuck Hamilton’s portfolio on the website for A. T. Hun art gallery in Savannah Georgia [↩]