How to Write Covered Calls?
A steady passive income is something everyone wants. Of course investing your money comes with some risks, as you could also find yourself in a situation where you can lose money. But if you choose a conservative approach and invest in a diversified portfolio, write call options on the stocks you own and get access to the right tools that can provide you the best investment possibilities on the market, then you are one step closer from having a guaranteed passive income each month.
With this kind of strategy you could make somewhere in the range of 12% annual return which is not so bad. At $100,000 invested you would have a monthly income of $1,000! One of the most popular strategies in achieving passive income in stocks is by writing covered calls. Of course like everything else in life the strategy has its pros and cons. Here is an example: Let's say you own 100 stocks worth $35 each ($3,500 total). You write a covered call, at a premium of $3 which gives the buyer the right of acquiring your stocks for $38 anytime in a 3 month period. If the stock price goes over $38, then you will lose your stocks. You will make $300 profit from the stocks and another $300 from selling the option. So, you make $600 profit, which is great!
The disadvantage is that, if for example the stock price would go up to $45 then you would be in a fix for selling the option because if you held on to your stock, you would have made $1,000. On the other hand, if the stock price goes down you will get to retain the stock options and with the $300 from writing the call.
So, if the stock price doesn't go under $32, you would still make profit. Without writing the call, at $32 per share, you would lose $300. So taking all in consideration, writing covered calls is a great financial strategy.
The obvious question now is, how to write covered calls without losing your stocks? First of all, you need to own at least 100 stock shares or an ETF with minimum 100 stock shares. Then you can write the covered call on it. When writing the call, you must ask yourself the next question - "what is the minimum amount of money for which I would sell my stocks?" If for example you don't think that your stocks value will increase with more than 10%, or you would be pleased to sell the stocks if they do, then you should write a covered call with an upside potential of 10%.
About the Author
To know more about writing covered calls and to get access to the best covered call writing tools please visit the website- https://www.borntosell.com/
Tell others about
this page:
Comments? Questions? Email Here