Have you ever thought about using the stock market as a part-time business, producing actual take home pay? No? Okay then we would like to introduce to you just one such strategy for producing actual monthly checks. Writing Covered Calls is a cash-flow work-horse strategy. It is a classical way to get assets producing income.
Here's an example: A stock that is priced at $4.90. It should go up. There is activity on the options. Options give the purchaser the right to buy so many shares of the stock at a certain price. The next month out $5 calls are 45¢ X 50¢, the bid and ask. You would pay 50¢, say times 1,000 to lock down the right to buy 1,000 shares at the $5 price. Think of what you would make on your $500 trade if the stock goes to $6. You could make a profit of $500. Cool deal. But the problem is that the stock doesn't necessarily go up. It could go down or stay about where it is. It has to go up and go up quickly or you will lose all or part of your money. It's too risky for the average investor.
So how is Writing Covered Calls different? To write means to sell. Covered means you own the stock. Call is a call option. Let's get back to the Option Market Maker. He has sold to someone, the right to buy the stock at $5 for 50¢. He has to deliver the stock if the option is exercised on. However, he looks around and finds other people who also own the stock. There you are living in Miami. He tells you he'll give you 45¢, or $450 if you will agree to sell your stock. He lays off the obligation on you. He will give you the $450 the next day, and you have to wait out the term, usually 3 or 4 weeks to the third Friday of next month.
You are interested. $450 is not bad and you are already contemplating the extra $100, which is the difference between the $4,900 purchase price and the $5,000 sales price. You ask him, "What if the stock stays to same, around $4.90?" He says, "That's fine, you won't have to sell the stock." "But do I get to keep the $450," you ask. Yes, and you further learn that if you sell the stock or not, you still get to keep the $450."
"Wow," you say, "so what's the downside?" He tells you the only new risk is that you sold away everything above $5. If you think you have a high-flyer, then don't use this stock to write a covered call. The $450 is yours. You can take it out immediately, or leave it in your account. You can pay bills with it, leave it alone, or use it to buy more stock.
The broker makes the $50, and does this hundreds or thousands of times a month. Everyone benefits. You, especially so, because you pocketed the most. You took in $450, minus commissions, and you even could buy the stock on margin, meaning you only have to put up half the money on the $4,900, or $2,450.
If you had ten chunks of $2,500 you could take in $3,500 to $4,500 every month. We show the deals in a new and fantastic service called TDT, or Thousand Dollar Thursday. We share deals like the one above every week, all to your benefit. If you want theory we’re probably not for you, but if you want real, street-tested knowledge based on thousands of deals, then we invite you to learn more.