What is Options Compounding?
Options compounding involves selling covered calls and cash-secured puts regularly, then reinvesting the premium collected to buy more shares. This creates a compound effect where your growing share count allows you to sell more contracts over time.
Covered Calls
Selling call options on stocks you own. You collect premium upfront and keep it if the stock stays below the strike price. Requires 100 shares per contract.
Cash-Secured Puts
Selling put options with enough cash to buy 100 shares if assigned. You collect premium upfront and may acquire shares at the strike price if the stock falls below it.
Key Benefits
- Regular Income: Collect premiums weekly or monthly
- Compound Growth: Reinvest premiums to buy more shares
- Portfolio Growth: Increasing share count = more contracts
- Flexibility: Adjust strategy based on market conditions
Important Considerations
- Assignment Risk: You may be forced to sell/buy shares
- Market Risk: Stock price movements affect outcomes
- Opportunity Cost: Capped upside on covered calls
- Capital Requirements: Need significant capital for puts
Remember: This simulator shows theoretical results. Actual options trading involves significant risks and requires careful consideration of market conditions, implied volatility, and other factors.