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Selling
Covered Call Options as a Form of Monthly
Residual Income
Yes, selling
covered calls on stock you own does generate
monthly income.
In fact, selling
call options on stocks you buy is a fast and
reliable way of generating income on a monthly
basis. It works like this:
Let’s say you
bought a stock on Monday at $9.75. That stock is
now in your possession and you now own it. If
you wanted to sell it the next day you are
free to do so. If you wanted to hold
that same stock for three years you are
free to do so. However, if you wanted
to generate income from that $9.75 stock you
are free to do so.
Fast forward to
the next day, Tuesday, and you’ve decided you
want to sell the stock you purchased on Monday
when it reaches $10. Rather than selling the
stock immediately, you could sell a call
option.
Selling a call
option means that you would be selling the
right, not the obligation, to someone
in the market place to buy that stock away from
you at the $10 price at a later date. The buyer
of the option would then pay you something
called a premium. In this example our premium is
$.90 per share. The price that you’ve agreed to
sell the stock at is called the strike price.
In this case it’s $10.
So in the above
example you sold a call option and earned a $.90
per share premium. Simultaneously, you
agreed to sell the stock at the $10
Strike price.
No matter what
happens in this transaction, if the buyer
decides to buy the stock from you or let the
option expire, you get to keep the $.90
premium.
The buyer of the
option could choose to exercise that option at
any time before the expiration date and pay you
the full $10. If the buyer decides to
exercise the
option, you would be obligated to sell the stock
to him or her at the $10 strike price but you
would keep the $.90 premium.
Let’s
look at the total profit.
Stock bought at
$9.75 sold at $10 = .25 per share profit or 2.5%
return
Plus .90
premium. = .90 per share
profit or 10%
Total profit on
trade = 12.5% per month.
Did you know
there are individual sell call options
each month and generate over $100,000 per month
income?
So wait what are
you waiting for?
Shouldn't you be
selling call options on stocks you own to
generate a monthly pay check? |
