Thursday, October 21, 2010

"Covered Calls" - Smart Investing Strategy When Markets Hit The Doldrums

This is a Sponsored post written by me on behalf of Born To Sell. All opinions are 100% mine.

Umbrella covered call
There are times when the stock market hits the doldrums. Trading volume declines and share prices go sideways. These are times when investors become extremely edgy and impatient and start looking for other ways to beef up the earning potential of their investment portfolio. These are times when they are tempted to discard their buy-and-hold strategy! Times when they may even prematurely divest themselves of their under-performing stock holdings despite maintaining a neutral to moderately bullish outlook of the stock market. There is, however, a way of maximizing returns on investments when the market hits the doldrums! Known as 'covered calls', this option trading strategy allows investors to generate  additional income from their buy-and-hold portfolio during those times when the market goes sideways!
Covered call writing refers to either:
  • The simultaneous purchase of stock and the sale of a call option (also known as buy-write);
  • or, the sale of a call option against a stock currently held by an investor (also known as overwrite).

How It Works
This may seem a little complicated to many, but the strategy is really simple and straightforward!
At the same time that the investor buys or holds on to a particular stock, he writes a call option or an offer to sell these stocks at a price pre-determined price ( known as the 'strike price' which is usually above the current market price) with an expiration date set at sometime in the near future. Under this arrangement, the option seller will be obligated to sell his stocks to the option buyer when the current market price is above this strike price level. On the other hand, the option buyer agrees to pay the option seller a premium equivalent to the difference between the strike price and the market price of the stock when the call option was made. The option buyer, however, may or may not exercise his right to buy the shares of stocks when the market price is above the strike price. He (option buyer) is obligated to pay the option seller the premium during the duration of the call.
In short, the investor is paid to agree to sell his stock at the strike price. He retains all benefits of underlying stock ownership, such as dividends and voting rights until such time when he is assigned an exercise notice on the written call and is obligated to sell his shares. Should the market continue to move sideways until expiry, there will be no exercise notice written on the call and the investor may offer a new call option. What this means is that if the investor had used the covered call strategy repeatedly over time, he'd have earned a lot more income in addition to the dividends you got along the way.
Covered call is a conservative income-oriented stock investment strategy which you should seriously consider specially when the market stalls and moves sideways. It offers you an opportunity to earn more than what banks and bonds have to offer. Why settle for 1 to 3% APR as offered by traditional banking instruments when you can earn at least 1% per month on covered calls.
Learn how to do it now. Because it is also not without some downside risks, you must learn from the experts on covered calls. Visit Born To Sell Covered Calls  now and start earning extra from the stocks you already own! They offer a free covered call newsletter, free covered call tutorial, and free covered call blog.

Visit Sponsor's Site
Enhanced by Zemanta

No comments:

Post a Comment