Gain Extra Income from Your Stocks
It's a relatively easy and well-known strategy, but many investors still do not take full advantage of covered call writing to maximize income, says Mark Wolfinger.
We're here with Mark Wolfinger, who's going to explain the process of using options to get more money from your stocks.
Yes, an investor can generate extra income for stocks he/she owns. It's called covered call writing. The idea is you own 100 shares of stock and you sell one call option. That call option pays you a premium. It's yours to keep forever.
In return for buying the call option, the owner has the right to buy your stock at the strike price; a predetermined price. You'll know in advance what that price is. The buyer of the option will know in advance what that price is, so if that call owner wants to, he can buy your stock at any time before the option expires.
If the stock doesn't go high enough so that this person doesn't call your stock away, take your stock, you get to keep your stock and you get to keep the premium...which you already kept, but it's your premium and it's extra income. You can write another call and another call every time one expires.
However, at some point, the stock may rise and remain above that strike price. So, if you have sold someone else the right to buy your stock at $55 a share and if stock is $60, well that person is going to exercise his rights and buy your stock at $55.