169: Our Favorite Passive Income Strategy (2026)

Hosts Austin Hankwitz and Robert Croak explain covered call ETFs as their preferred passive income approach, contrasting it with less passive options like laundromats or vending routes. They detail the mechanics, compare popular funds, and outline portfolio placement, emphasizing total returns over headline yields and tax efficiency.

Covered Call Mechanics

A covered call involves owning shares of a stock and selling a call option that gives someone else the right to buy those shares at a set strike price by a specific date, in exchange for an upfront cash premium. Using a real example, Hankwitz bought 100 Tesla shares at $220 each ($22,000 total) and sold a call at a $250 strike, collecting a $500 premium. Three outcomes follow: if the stock stays below $250 by expiration, the option expires worthless, keeping the shares and premium for repeating the process; if it hits exactly $250, the same holds; if it surges to $300, shares must sell at $250, yielding profit from purchase price plus premium but capping upside (missing $5,000 in this case). This trades potential growth for immediate income, repeatable monthly.