Generating Monthly Income From Stocks You Already Own
Many investors like covered calls because you can sell multiple calls against the same stock over a period of time.
As long as the stock is not called away from you, it is possible to generate recurring monthly income from writing these calls.
And, if the stock is called away from you, it is easy to purchase more shares with the money you receive from selling the original stock shares.
When investors write, or sell, stock options, they agree to the obligation to fulfill this option contract.
This means that they agree to sell the stock in the case of a call option.
The nice part is that when you sell, or write, an option, you receive the premium dollars from the option.
This means that you instantly make money in this transaction.
In the case of writing a covered call, if the price of the underlying stock goes up, it is likely that someone is going to exercise the option and you will have to sell the shares.
This means that you have been "called out" of the stock.
In order to lessen the risk of being called out of a stock that you do not already own, you can either write call options on stock that you already own, or you can purchase the underlying stock at the same time that you sell the option.
For example, if you want to sell one option contract on ABC Company shares, you can actually purchase 100 shares of ABC Company stock at the same time that you sell one call option contract on those shares.
By purchasing the 100 shares of ABC Company stock, you can eliminate the risk of having to buy the shares later at a higher price in case you get called out.
This technique is called writing a covered call, or covering your call writing.
Once you own the underlying stock, you can continue to write calls on these shares each time one expires worthless.
As long as you do, you can continue to receive a monthly income from the premium you receive when you write, or sell, the call option.
As long as the stock is not called away from you, it is possible to generate recurring monthly income from writing these calls.
And, if the stock is called away from you, it is easy to purchase more shares with the money you receive from selling the original stock shares.
When investors write, or sell, stock options, they agree to the obligation to fulfill this option contract.
This means that they agree to sell the stock in the case of a call option.
The nice part is that when you sell, or write, an option, you receive the premium dollars from the option.
This means that you instantly make money in this transaction.
In the case of writing a covered call, if the price of the underlying stock goes up, it is likely that someone is going to exercise the option and you will have to sell the shares.
This means that you have been "called out" of the stock.
In order to lessen the risk of being called out of a stock that you do not already own, you can either write call options on stock that you already own, or you can purchase the underlying stock at the same time that you sell the option.
For example, if you want to sell one option contract on ABC Company shares, you can actually purchase 100 shares of ABC Company stock at the same time that you sell one call option contract on those shares.
By purchasing the 100 shares of ABC Company stock, you can eliminate the risk of having to buy the shares later at a higher price in case you get called out.
This technique is called writing a covered call, or covering your call writing.
Once you own the underlying stock, you can continue to write calls on these shares each time one expires worthless.
As long as you do, you can continue to receive a monthly income from the premium you receive when you write, or sell, the call option.
