Why selling covered calls will not make you a millionaire

Many retail investors fall in love with the mechanics of covered calls because the math looks incredibly simple on paper. Generating a 2% to 3% yield every single week by writing options against your existing holdings sounds like an effortless path to financial freedom. However, this strategy relies on a dangerous assumption about market behavior. By selling covered calls, you caps your upside while leaving your downside entirely unprotected. If the stock collapses, you still absorb almost all the capital losses. If the stock surges, you lose your upside potential and your shares get called away.

Jack Selby and the Covered Call Strategy

Jack Selby advocates for a continuous covered call strategy using volatile, popular stocks like Robinhood. By targeting high implied volatility, he extracts substantial premium income, claiming that he does not care if the shares get called away because he views everything through weekly percentage changes. To bypass the tax consequences of high-frequency trading, Selby executes this strategy inside a Roth IRA.

Market Makers Always Take Their Cut

While the premium looks attractive, Meet Kevin warns that the retail trader is rarely the winner in these high-volatility environments. Large market makers pocket massive profits by widening the bid-ask spreads on highly volatile, hyped stocks. The wider the spread, the more money the market maker extracts from the transaction. This means retail traders selling weekly options into retail hype are constantly giving up a portion of their edge to institutional middle-men.

The Reality of Long-Term Underperformance

Critics of the weekly income strategy point out that passive buy-and-hold investing almost always wins over a long horizon. In momentum-driven markets, stocks can easily jump 15% in a short window. If your shares get called away, buying back in at a higher price before a subsequent drop destroys your cost basis. Ultimately, the constant labor and transaction friction of weekly option writing often yields lower net returns than simply holding the underlying asset and doing nothing.