The reasons that these financial instruments have become so popular is that they are relatively safe. A person is not risking anything by selling an option other than the stock, which they own. They will still make money if the option is used, however the real reason that these calls are so safe is that you own the stock. A call where you do not own the stock is called a naked call and this style of investment is very dangerous and risky.
What you need to do is determine what type of stock is right for you to use. Many people suggest using a strategy that buys a highly traded stock. This is because the more volume the more option activity. This is a great thing to look for when you are going to be buying a security.
What follows is an example. You purchase a stock, stock X for 10 dollars a share. You want to make income from this stock but do not want to sell it. What you can do is sell a covered call. You can sell an option for someone to buy the stock for eleven dollars and you will receive a premium. This means that if the stock does not move over eleven dollars you keep it, and you also keep the premium.
What a person next has to do is determine what type of investment they feel best with. Many people look for a company that they are familiar with. This is fine but what is important to remember is that you will need one that is going to have decent volume. There is no reason that you cannot get both at the same time.
The next thing you will want to do is determine if the company is something that you are comfortable holding for an extended period of time. Remember, when you are dealing with covered calls it is not a practice which involves the frequent selling and buying of stock. What you are doing is buying a security with the intent of holding it and keeping it.
If you plan the prices right this is a great strategy to get monthly income. It does not rely on you having to buy and sell stock but rather the selling of an option. This is one of the safest methods of making small and consistent amounts of income.
When you engage in covered call selling you stand to make steady income. What you need to do is make sure that you have selected a security that you are comfortable owing and will not want to sell. This is the reasons that many people choose safe stocks or investments in companies that are holding gold. These funds and stocks have value and are highly traded.
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