By: Jerry Nix | Freewavemaker, LLC April 26, 2024

I have written about a way to make a lot of money in popular stocks without investing a lot of money in the high dollar stocks. You can find my previous posts here:

• The great synthetic stock idea – Part 1 – posted December 9, 2022
• The great synthetic stock idea – MSFT Part 2 – posted February 13, 2023
• The great synthetic stock idea – Part 3 – posted April 28, 2023
• The great synthetic stock idea – Part 4 – posted January 10, 2024

This post is not going to go into detail about how you do this other than to say you research the stock you want to buy just as if you were going to buy the stock. Then rather than purchasing the stock you purchase a long-term option strategy (I normally go out about a year). I will BUY the call option as close to “At The Money” as possible or even a little “Out of The Money” (to lower the cost) and then at the same time SELL a put option at the same strike price and expiration date.

In this scenario I purchased the June 21, 2024 – $425 Call Option on NVDA and sold the June 21, 2024 – $425 Put Option to help finance the cost of the call option. I made these transactions (which the broker considers one transaction) on June 15, 2023 with the intent to close out the strategy not later than 30 to 45 days before expiration. As you may or may not know … 30-45 days before expiration an option can lose 50% of it’s value due to the greek known as Theta. Experienced options traders understand that term.

I did not do this transaction in my brokerage account (though I wish I had) but rather in my wife’s brokerage account (and she has no idea what I am doing there). When I made the transactions on June 15th last year the company stock (NVDA) opened at $426.02. It went as low as $421.47 on that date and closed at $426.53. So, using the $425 Strike price I was attempting to buy as close to “At the Money” as possible.

Since purchasing this option strategy the stock has increased from $425 per share to about $870.50 per share as of this writing, though a couple of weeks ago was as high as abou$950 per share. Thus there has been a rise in the stock price currently of about $445.50 or about 105% over the past one year – which is not bad. But let’s take a look at the options strategy.

First my wife’s account:

The above image shows my wife’s account was up a whopping 92.84% as of 10:18 this morning. I say the return on the NVDA strategy of 1,810.52% and decided now (50 days before expiration) may be a good time to “pull the trigger” and get out of this one.

I put a price in of $50 to close the two positions and let it sit. This was when the price to close them would have been about $46.00. About 17 minutes later my prices was hit.

Now let’s look at the results in detail.

The first option you see is the PUT option. I sold 1 contract and was paid $7,049.28. At the same time I purchased 1 CALL option and paid $9,375.66. This left my net cost in these two contracts to be $2,326.38.

Today I bought back the PUT option at a cost of $63.66 – giving this leg of the transaction a $6,985.62 gain (99.10%). The most a person can make when selling a PUT option is 100%. I also sold the Call option and received $45,61.98 for a gain of $35,686.32 or 380.63% on this leg of the strategy.

When you combine the two legs together you see a cost of $2,326.38 with proceeds of $44,998.12 and a gain of $42,671.94 against the cost of $2,326.38 which equates to a return on investment (ROI) of 1,834.26%. Not bad for holding an investment for 316 days. The worst part of this is that it will all be classified for tax purposes as a “short term gain” which means it will be fully taxable … ha ha … if it were not in my wife’s Roth IRA account.

When I showed this to my wife – expecting a big hug and kiss – all I got was, “Well you can make me a rich old lady if you want to but I will still do my shopping at Goodwill.” I guess you got to love a lady like that! The more she saves me the more I have to spend!

What’s next?

Well with a lot of cash sitting in her account now I will look for some stocks between $100 and $500 per share that I think has the potential to go up to $200 to $1,000 per share over the next year (looking for 100% return on the stocks so as to gain 1,000% or more on the options) – and do it all over again.

What’s the downside?

In this case the most I could have lost in the Call Option would be the money I’d invested ($9,375). However, I did have to lock down $42,500 in the brokerage account and not invest it in case the trade went against me and the stock when down in value. In that case I was obligated to purchase 100 shares of the stock at $425 per share. It could have been a loss (a huge loss) depending on how far the stock dropped. Remember though I was paid $7,049.28 to sell the option – so the most I would lose on that leg would be $35,450.72. However, it would not have been no worse had I purchased 100 shares of the stock for $42,500 and it went to $0.00, losing me $42,500 – which is not likely for a company as good as Nvidia Corporation (NVDA). Afterall, they make chips for Artificial Intelligence and it seems like the world is going with AI here lately.

Conclusion:

That’s it for this post. Just remember … there is more than one way to invest in the market and create much better gains with less risk that actually buying stock outright. Why more people does not do this is beyond me. What I hear most often is, “I don’t know how,” or “I don’t know what I am doing.” I understand that … and I didn’t either until I decided to go on-line (Youtube is a good place to start) and get some self-education. We need to quit depending on schools and universities to teach what really needs to be learned and depend on ourselves more.

Have a great investment life!

Jerry Nix – Freewavemaker, LLC