Yesterday I shared the first post in my series on selling covered calls to reach financial freedom. To my surprise, it got a lot of likes and attention—thank you all for reading and engaging.

This series isn’t meant to be a how-to manual but rather a reflection of the strategy I found that works best for me. Everyone dreams of financial freedom, but as we all know, there’s no such thing as a free lunch. The stock market offers thousands of ways to make money—you just need to find the one that fits your temperament and goals.

Since quite a few readers mentioned in the comments that they’re new to stocks and options, I thought I’d use this second post to talk about the risks of selling covered calls.

First, the Basics

If terms like IV, ITM, OTM, Theta, Delta, strike price, rollover sound unfamiliar, I highly recommend pausing here to do a little homework. Google them, buy a beginner’s book on options, and invest the time to build a solid foundation. About ten years ago, I spent a full year reading through piles of options books (see photo below). I’ve forgotten plenty of details since then, but that knowledge shaped the way I trade today—and it was absolutely worth the time. Sharpen the axe, and chopping wood becomes much easier.

The Biggest Risk: Capping Your Gains

The number one drawback of covered calls is that you limit your upside. If you like to gamble on small-cap biotech or speculative “meme” stocks, covered calls are a bad fit—you’ll get called away right before the fireworks.

And a quick but important warning: selling naked calls or naked puts is not the same thing. That’s extremely risky, and sooner or later it can wipe you out completely. That’s gambling, not investing, and I strongly discourage it.

The second risk comes from the underlying stock itself. If you pick a stock that keeps sliding lower, no amount of call premium will make up for the losses. That’s why stock selection matters so much. My personal rules of thumb are:

• Market cap > $10 billion

• Implied volatility (IV) > 40%

• Daily trading volume > 1 million shares

• Share price > $10

• Prefer hot, liquid stocks with healthy options markets

• Best of all: companies moving from negative to positive earnings in their growth phase

Because remember—covered calls are not the end goal. We still want the stock itself to trend upward.

The Trade-Off: Stability Over Home Runs

So why sell CCs at all? Because the trade-off is worth it: by capping your maximum gain, you get more stability and a higher probability of profit. For people with full-time jobs who can’t sit in front of a screen all day, this is a big advantage.

Many people say, “But what if I miss the next big rally?” Ask yourself honestly: how many of you actually caught Tesla’s run from $100 to $300 in 2023? Or from $150 to $250 between April and July this year? Most of us don’t. So why obsess over the money we might have made?

When you recognize that you’re unlikely to capture every moonshot rally anyway, your mindset shifts. Instead of FOMO, you find peace of mind. Selling CCs becomes a steady rhythm—every week when bills are due, you collect some premium, like clockwork.

Don’t chase the lottery ticket. Chase consistency. And as the charts show, compounded steady returns can be far more powerful than sporadic windfalls.