Guaranteed Winning Stock Options Trading Strategy
Option trading can give you a source of income you may have previously not thought about. One particular strategy you can learn with options is called the covered call strategy.
This strategy can produce income based on shares or stock that you intend to own for the long term. If you hold stock as a long term investment you should look at this strategy to boost the income you can make from those shares.
How it works. Options can be sold using the stock you own as security. If you own 100 XXXX stock, then you can write an option to sell into the market for a limited time. Your broker will assist you with this. When you write the contract, it is simply a matter of informing your broker that you wish to do so. Your broker will setup an options trading account for you.
Let’s say your stock is trading at a price of $30.00. When you write a contract to sell you might be happy to sell your stock at $35.00 anytime in the next month only. You will not be required to sell at this price, but merely happy to sell if you wanted to. The contract price in the market may be worth $2.00 per stock. You have offered 100 stock. When your contract is placed in the market and accepted, you will receive $200.00 immediately. That $200 is yours to keep. The stock you have offered is still owned by you, but should the price of the stock go above $35.00 in the next month, you have several choices.
You can buy back the contact you offered to the market, usually for far less than you received for it, say $60.00, or you can move your options price up another notch to say $40.00, or you can wait until the contract comes to end of its life, and if nobody wants your stock, you do nothing.
Premium collection is a way to enhance your income from stock you own. The premium you receive will vary depending on a lot of factors. Some of these factors include the time period of the contract, the amount of stock you offer, the market conditions at the time you enter.
Before you enter the contact you should have an understanding of the basics in options trading. Volatility, liquidity and the stock that you use, will make a big difference to how well you do utilizing this strategy. You can learn how to trade at our site and make sure you talk with your broker about this strategy because both you and he need to understand the requirements and expectations
Their may be months when you are able to write the contract because of volatility issues or because the stock is about to issue dividends. Some caution should be used and a daily account of position should be looked at. Don’t leave all the responsibility with your broker unless they are informed and happy to accept the responsibility of management for the stock options. Extra fees may apply.
If you are dealing with a large stock portfolio, you might look at index options. These options are placed over a group of stock rather than an individual stock. Another point to discuss with your broker is placing a protective put option under your covered call
