Many people dream of becoming high-flying options traders who can double their money in a month. Sadly, they are more likely to lose their money than double it.
Trading options is not for the faint of heart. It requires nerves of still and the ability to detach your emotions from what’s happening.
I love trading options, but I‘d rather have a steady, consistent income stream from renting a room. The average person can make a fortune renting a room while avoiding the options market altogether.
The Sharing Economy vs. Inflation
Why compare options trading and renting rooms? Let’s say you need to earn an additional $1,000 per month. You could get a second job or try one of these passive income strategies.
To most Americans, making an extra $1,000 is a lot of money; it is to me. An additional $1,000 can mean the difference between going on a vacation, preventing a disaster, or being more generous.
Why rent rooms? Every middle-class and upper-middle-class family in America should rent a room. There is simply no better way to make passive income.
My wife and I were in $77,000 of debt in 2019. We started renting rooms and got out of debt in two years. We rented rooms and stockpiled enough money to create a considerable dividend portfolio.
We stopped renting rooms for a couple of years, but now we want our cash flow back. It’s tough to walk by an empty guest room and know we are missing out on $1,000 of passive income.
Cellphone Upgrades vs. Dividends
The key to renting rooms is finding a great roommate that matches your lifestyle, temperament, and discipline. Finding a good one may take six months, but once you do, it’s free money.
Renting rooms should be your first choice if you want to pay down debt, build savings, or create additional cash flow. It’s the safest way to change your life.
Why sell covered calls? Selling covered calls is a relatively safe way to earn passive income from the options market. Selling a covered call requires you to own 100 shares of the underlying stock.
I recommend having a $40,000 portfolio to earn $1,000 per month in options premiums. That’s a lot of money for most people.
Let’s give an example. Palantir (PLTR) is trading for roughly $30 per share. I would need to purchase 100 shares to sell one covered call.
House Hacking vs. Online Business
I can sell one covered call to earn $1.04 per share, giving me an options premium of $104 per contract. Therefore, I would need to sell ten covered calls to earn over $1,000.
To sell ten covered calls, I would need 1,000 shares at $30, bringing my total to $30,000. Of course, it would be wise to diversify from only trading one stock.
Most people just don’t have that type of money, bringing us back to the drawing board. Again, earning $1,000 monthly in passive income is no small feat.
Rent rooms to change your financial situation. We can take the walk-jog-run approach to becoming investors. First, you must understand the true power of renting rooms before trying it.
Dividend Investing in Your 30s
All investors should aim to create an infinite return. An infinite return is when you get all your money back from an investment while still owning the asset.
Let’s say you invest in Altria (MO) at an 8% yield. In nine years (following the rule of 72), you get your initial investment back by collecting dividends. You still own the asset and collect dividends but have all your money back.
When you rent rooms, you start with an infinite return. It may take you $1,000 in capital to get started; you may need a new bed, mattress, refrigerator, and desk.
However, after the first month, you get your money back from the investment. You are already earning an infinite return.
America is Expensive: What Will You Do?
Know your interest rates. Understanding interest rates and capital requirements gives you an overall picture of your financial status.
You should always compare renting rooms and selling covered calls to prevailing interest rates and bond spreads. Let’s examine this.
Let’s say you want to earn $1,000 monthly from a high-yield savings account earning 4.5% interest. You would need $266,667 in your HYSA to earn $1,000 monthly interest. Don’t forget you’ll also be paying federal and state taxes on your interest.
Now, we will try the same number with Ares Capital (ARCC), a business development company that earns 10%. You would need $120,000 in ARCC to earn $1,000 per month.
Blogging vs. YouTube #4
Let’s review how I got the HYSA number. I took the monthly total I wanted ($1,000) and multiplied it by 12 to get the annual total ($12,000). I then divided $12,000 by the interest rate of 0.045 to get $266,667. Now, you try to do the number for ARCC.
Reviewing the numbers. Now that we understand the numbers for a zero-risk HYSA and a low-risk stock let’s compare them to renting rooms and selling covered calls.
We need $1,000 in capital to rent a room, compared to $266,667 for an HYSA. We need $40,000 in capital to sell covered calls, compared to $120,000 for a dividend stock.
You can see how the numbers play out. Which passive income stream has the highest yield? The yields are HYSA at 4.5%, ARCC at 10%, covered calls at 30%, and renting rooms at 1,200%.
Blogging vs. YouTube #3
It’s clear as day which investment has the highest yield and the lowest risk. That’s why I am such a massive proponent of renting rooms.
Finding a good roommate. You’ll want to start with family members and friends you know well. Ensure they are a good fit, have a source of income, and have great habits.
If you don’t have family or friends nearby, try college students or military members. Then, you can widen your search. Eventually, you’ll know how to read people and see who will fit your household well.
Becoming an options trader. You don’t need to wait to start trading options once you have $40,000; in fact, it’s not a good idea. Once you get $1,000, you can trade a stock under $10. At the moment, I recommend SoFi Technologies (SOFI) at $6.64 per share.
The Stock Market is NOT a Wealth Generator
Start selling a covered call once per month. See how time decay and volatility affect your options price. Document your trades.
You’ll discover a rhythm of the stock over time. Use the rhythm to determine when to trade in and out of your contracts. Soon, you can sell cash-secured puts before buying the stock to ensure a much lower price point.
Conclusion. Life isn’t about risking it all to win big. It is about doing small, practical things with a 95% success rate.
How to Create Meaningful Content
I have an excellent record as an options trader because I always compare my wins to how much I would have earned in an HYSA. This comparison prevents me from becoming too greedy.
However, my wins as a landlord who rents rooms are far superior to my options trading career. Renting rooms is simply the best thing the average person can do to get rich.
When you take the income from renting rooms and place it directly into a high-yielding venture like a business, options portfolio, or income investing, you get a yield on an infinite return. That’s the combination that will set you free. Good Luck!
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