Turning your SPY shares into a regular income stream — and what to do when the market moves against you.
The SPY shares sit there and grow. The LEAPS amplify upside and protect downside. Covered Calls are a strategy that allows the portfolio to earn income. You sell a Call option against your existing SPY shares, (ALWAYS AT OR ABOVE PURCHASE PRICE) collect the premium upfront, and repeat the process every week where possible (premium minimums)
In flat markets, this is pure income — you are being paid for agreeing to sell your shares at a certain price, and if the market does not reach that price, you keep both the shares and the premium. Over time, this weekly income compounds. It accumulates in the cash reserve and is reinvested in more SPY shares once you reach the 100-share threshold, creating a compounding loop that steadily grows the portfolio’s foundation.
You sell one Call contract per 100 SPY shares you own. The strike is at or above the current SPY price (at-the-money), with a default expiry of approximately 7 days. This short duration is intentional — weekly options offer the most favourable balance between premium collected and time at risk.
The typical premium is around 0.4% of share value per week. That does not sound like much, but over a year it can add up to roughly 12-15% in income on the share position depending on market conditions. In a BEAR market, however, these results will be materially LOWER.
Every week ends in one of two ways:
SPY finishes below the strike. The option expires worthless. You keep the premium, you keep your shares, and you sell a new Call the following week. This is the best outcome for the income engine.
SPY finishes at or above the strike. Your shares may be called away. You still keep the premium. You repurchase the shares and immediately sell the next Covered Call. The key on expiry day is to check whether it is cheaper to buy back the option and sell it at market, or let the shares be called at the strike price.
Covered Calls cap your upside above the strike price for that week. If SPY rallies 3% in a week, you collect your premium but miss the gains above the strike. This is exactly why CALL LEAPS exist in the system — they recapture that capped upside during strong rallies.
In falling markets, the premium you collect provides a small buffer but does not fully offset losses on the shares. That is where SPY LEAPS PUTS do the heavy lifting.
The minimum acceptable premium is USD $0.50 per contract ($50 per 100 shares). If the weekly option does not meet this threshold, extend to a later expiry date until it does.My maximum is one month. Any longer, I will just wait until the S&P 500 recovers.
All premiums accumulate in the cash reserve. Once enough cash has built up to purchase another 100 SPY shares, you reinvest — growing the share base, which in turn allows you to sell more Covered Calls and compound the income further.
Below strike: Option expires worthless. Keep premium, keep shares. Sell new call.
At/above strike: Shares may be called away. Keep premium. Repurchase shares, sell new Call.
Minimum: USD $0.50 per contract ($50 per 100 shares).
If not met: Extend to later expiry dates for sufficient premium. Maximum one month out.
Reinvestment: Accumulate cash until enough to buy another 100 SPY shares.
| Strike | At or above current SPY price (ATM) |
| Default Expiry | ~7 days |
| Typical Premium | ~0.4% of share value per week |
| Minimum Premium | USD $0.50 per contract ($50 per 100 shares) |
| Coverage | 100 shares per 1 call sold (always covered) |
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