Have you seen the teaser pitch from Amber Hestla about her little-known strategy for becoming a “stock landlord” and earning income by renting out your shares? It sounds appealing, and like the kind of thing you imagine the big investors must be doing to get an edge, right?
Well, sort of — let’s look at the tease and see exactly what it is she’s talking about. Here’s how she gets us intrigued:
“Did you know you can receive a monthly income from the stocks you own…
“…much like you would from a rental home?
“… the stocks in your brokerage account can also generate monthly income, much like a rental property. But you’re probably not taking advantage of this.
“Consider for instance, that if you owned a $150,000 apartment in Boston, Houston or Seattle… depending on the neighborhood, you’d collect about $1,400 a month in rent.
“Likewise, if you owned only $80,000 worth of stock in companies like Apple, Facebook and Intel… you could essentially do the same thing and collect $1,400 a month on them.
“The best part is, this income is in addition to the dividends these stocks already pay you.”
She compares this to the fact that big funds and ETFs routinely generate a bit of income by “renting” their shares — but that’s a bit different, those are shares that are being rented to short-term traders or short-sellers, who pay a bit of interest or a fee for the “borrow” of the stock because they want to bet on the movement of the price over a short period of time without actually buying a big position. That really is kind of like “renting”, but you generally can’t do it as an individual investor (though if you hold your stocks in a margin account, your broker is probably renting them out and keeping the fees).
What Hestla is pitching here for her Maximum Income service is options selling — and primarily, since it is sort of like “renting” out your stocks, the sale of covered call options. Hestla has been touting the basic options-selling strategies for a year or so, for both Maximum Income and Income Trader, which for some reason costs a bit more ($499 vs. $299 — these kinds of letters are generally fairly expensive, since options trading is illiquid in most names and the market can’t absorb thousands of subscribers all trying to do the same thing at once), and this may well not be brand new to you — but since folks have asked, I’ll run down exactly what covered call selling is (I’m stealing the examples from an article I wrote last Fall when she was pitching the “Hestla Heist” and I covered the put and call selling she talks about in more detail, so the numbers are probably a bit off but will still give you the general picture).
Options trading is pretty simple, if dangerously levered in some cases, but it uses a different lexicon so sometimes novice investors find it baffling. The basic idea of covered call selling is that you own a stock, and you’re willing to sell someone the right to buy that stock at a particular price for a defined period of time (typically two or three months in most strategies, though options can go out a couple years in some cases), and these “rights” are sold as standardized opt