| Covered option calls are a well-liked way to generate | | | | the broker what options trades that they desire to |
| income in an investment account, even in retirement | | | | be authorized for, and their own risk tolerance for |
| portfolios like Individual Retirement Accounts (IRA's). | | | | these types of trades. As I suggested previously, |
| This cash flow can be generated upon any stock | | | | this technique is so conservative, almost all stock |
| inside your account which has actively traded options | | | | brokers may even let you do it in your IRA account. |
| associated with it, the caveat being that you need to | | | | Next, the investor must determine which stocks they |
| own at the very least 100 shares of the stock you | | | | want to sell options against. These stocks can have |
| will sell covered option calls against so that you can | | | | options sold against them in 100 share multiples, since |
| to get benefit from this money making technique. | | | | each contract represents One hundred shares. For |
| We begin by taking a look at what a call option is. A | | | | example, if you own 230 shares of Apple (AAPL) in |
| call option contract gives the buyer the right, | | | | your account, you could write 2 covered call |
| although not the obligation, to buy 100 shares of | | | | contracts against 200 shares of the Apple computer |
| stock at the price outlined within the contract (strike | | | | stock in your account. Finally, the investor needs to |
| price), on or prior to the date the contract expires | | | | determine what price they would be like to write the |
| (expiration date). One of the important principles here | | | | contract for, and how long they would like the |
| would be that the purchaser of the covered option | | | | contract to be in place. |
| calls contract would lose cash should they exercised | | | | Once the investor has completed these steps, they |
| their particular right to purchase the actual stock, | | | | merely need to call their broker (or login to their |
| when the stock is trading underneath the strike price | | | | online trading account), and place the order to sell the |
| on the contract. This is actually simply because they | | | | covered option calls from their account. Once the |
| can buy the stock for a lower price on the open | | | | sale is complete, the investor will receive cash in their |
| marketplace, so there would be no reason in | | | | account for the call options that they sold - this cash |
| exercising the call option contract in these situations. | | | | is theirs to keep. |
| So that you can put into practice this income | | | | If, at the end of the contract period, the price of the |
| producing method, an investor is going to do a couple | | | | stock is below the call option strike price, then the |
| of simple tasks. Initially, the investor would have to | | | | investor keeps their stock, and can write new |
| ask their broker to set up their trading account to | | | | covered option calls against their shares of stock. |
| permit options trading. This generally involves reading | | | | However, if the stock price has risen above the |
| a short pamphlet on the risks associated with | | | | strike price of the option contract, then the investor |
| standardized options trading, and putting your | | | | will have to sell his shares to the contract holder at |
| signature on a form indicating that you fully grasp the | | | | the strike price specified in the agreement. |
| risks. The investor will most likely likewise have to tell | | | | |