Turbo Charge Your Investment Income by Writing Covered Calls

Despite the fact the millions of hard working Americans have been investing for their retirement for a number of years many people simply will not have enough money to comfortably retire when it is time to do so. Recent accounting scandals and poor economic conditions have resulted in massive investment losses. Faced with these enormous declines in value, and fixed income rates that are currently hovering around 1%, many individual investors are looking to more advanced stock market strategies to help make up the difference. Perhaps the most conservative of these advanced strategies is selling covered calls.

Many people are afraid to use options as a part of their investing strategy. They are under the erroneous belief that all option strategies are risky. While it is certainly true that buying puts and selling naked calls increases your risk to unacceptable levels, selling covered calls is perhaps one of the most conservative investment strategies available to the small, non-institutional, investor. In fact, writing covered calls is considered so conservative that you are allowed to use this technique inside your IRA.

A call option contract gives the buyer the right, but certainly not the obligation, to buy a specific stock for a specific amount on, or before, a predetermined date. Buying a call is risky yet selling a covered call actually reduced the downside risk you already have by owning stock investments. When using the covered call strategy you only sell call contracts on stocks that you already own. This might be shares of stock that you have had for a while or it may be shares of stock which you just purchased. The key component of this strategy is that you actually own the underlying asset.

The mechanics of writing covered calls is a lot less complicated than most people would imagine. Most stock trading platforms can automatically handle the execution of the buy-write order within a matter of seconds. Before you attempt to sell a covered call with real stocks you should consider practicing on paper for as much as six months to a year. The art of understanding options, and all of its components, can be daunting, yet may prove to be extremely profitable. If you are looking for a wonderful way to turbo charge your investment returns consider learning how to write covered calls.

Tagged with: covered calls • option trading strategies • writing covered calls

Filed under: Options and Investments General Info

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