Unvalidated Ideas #014

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SecondBonus - Automated call selling for tech workers

You know who gets paid a little less these days but still makes a ton? Tech workers at FAANG (Facebook/Amazon/Apple/Netflix/Google) companies.

The salaries on levels.fyi are insane (compared to most industries). But you should notice one thing though -- most of the time, cash compensation caps out around $200K USD, and starts becoming heavily weighted towards equity (shares of company stock) rather than cash.

Getting paid in stock has felt pretty bad for the first half of 2022, but in bear and neutral markets, one great way to generate returns is to sell large amounts of covered calls.

This isn't a finance newsletter but I'll tak ea shot at explaining it. Covered calls are a pledge to sell stock you already own at a given price, by a given date.

For example: if you have 100 shares of $AMZN, and they're currently priced at $100. You can sell a "call contract" at $110. Why would anyone pledge to sell stock? Well, the buyer of your pledge pays you for this -- they think $AMZN (Amazon) stock will be above $110 in the future!

There is no such thing as risk-free return, so what's the risks? Well there are two:

• The stock goes up past the (losing the price appreciation you could have gotten if you weren't forced to sell)
• The stock goes down from where you were awarded stock (you lose money, versus if you had sold immediately)

OK, hopefully that was enough of a crash course to understand the core idea -- give tech workers (and other heavily equity compensated workers) a platform to perform automated call selling on their equity.

To make this idea work:

• Create a simple, stripped down, no-nonsense business
• Absolutely no mention of rocketships or any of the stupid retail investor mania
• Integrate with brokers like Fidelity and TD Ameritrade
• Educate your users on what the strategy is so it is not opaque to them
• Let them choose how aggressive to be and limit their initial investments (force them to start small!)

This is a product for unsophisticated investors to do sophisticated things, safely. It must be boring.

Read my raw notes >

NOTE You want to make this idea even more boring? Introduce people to investment-grade corporate bonds.

The bond market is bigger than the equity market. The bond market moves slower and is MUCH safer -- even if you pick the riskiest companies ("high yield" bonds) -- you get paid out before stockholders in case of bankruptcy. You can also just lend money to companies like $AAPL (Apple) and sleep soundly.

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Victor (vados@vadosware.io)