Investors who sell covered calls know it's a proven strategy that every-day investors as well as large hedge funds use to generate income on a monthly basis.
It's not unrealistic to generate 3% to 5% per month.
An experienced investor who knows the ins and outs of selling options (also called writing covered calls) can earn 4% a month without taking much risk; that's a return 48% annualized, and if compounded, meaning no money is withdrawn and all profits reinvested, 60%! Higher returns in the 5% to 8%, and sometimes 10% a month are certainly possible if you get a stock in an uptrend and are capturing premiums as well as stock appreciation.
1.
When you sell a call option you create CASH FLOW! If you are a "buy and holder", then collect some easy monthly rent and super size your returns! 2.
Selling covered calls is lucrative; you can earn 3% to 5% per month.
A $50,000 portfolio compounded at 4% monthly yields $524,288 in 5 years! 3.
You can sell options in any market; there are strategies for bull markets, bear markets and sideways markets.
4.
Covered calls are conservative with limited risk; they can be combined with puts for the ultimate in downside protection or sell at-the-money or in-the-money calls for fatter premiums that lower your cost basis.
5.
The process is not time consuming; no staring at your computer for hours a day.
The Rules of the Game * Successful sellers/writers depend on quality stocks.
Pick rock-solid stocks with strong earnings per share (EPS) and know where the stock's support and resistance points are located.
There are some high quality covered call screeners available.
* DO NOT be seduced by fat, juicy call premiums! This is where many inexperienced investors go wrong; they see a whopper of a premium and go for it.
If you pick a stock that is incredibly volatile, you could be down $5.
00 on the stock before you know it.
* Plan your trade and execute.
Know the current stock market trend, your stock's trend, any upcoming news like earnings that may make things a little unpredictable.
* Consider dividend-paying stocks to help offset margin interest or just boost returns.
Stocks like Merck pay almost a 5% dividend and are volatile enough to have nice call premiums.
This is the best of both worlds.
* Use a protective put strategy for the ultimate in protection.
If the stock tanks, you still make money! What does it take to write covered calls profitably month after month? * Successful covered call writing requires knowledge and skill; all of which can be acquired.
* You need to be focused to learn about the process, ask questions, and get help where needed.
Fortunately, there are a lot of resources.
As a trader, it's important to really understand that we can no nothing to control or beat the market.
That may sound odd; the market is there every day doing its thing.
If a surfer is on a wave and it's not going his / her way, they get off and find another one! That's what experienced investors do.
If for some reason the trade is not performing, then you mange it accordingly, either using a covered call writing repair strategy or just closing out and live to trade again.
"Hanging in there" doesn't earn a trader anything but a stomach ache! Understanding these basics can bring you a huge peace of mind; the ability to create your "paycheck" every month no matter what without worrying about the economy, your job, social security or the world for that matter.