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How a Covered Call Generates Additional Income

by coveredcall02

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Stock market investing has become a preferred option for individuals who have disposable liquidity. By purchasing shares of stocks of companies, individual investors can possibly earn extra income. It is a common practice in the stock market for investors to buy shares of stocks when prices are low and then sell these shares when prices suddenly increase. However, other strategies have also been developed to maximize the earning potential of stock market investors. One of these strategies include selling covered calls, a strategy wherein an investor sells covered call options in an attempt to earn extra income from the stock that has been sold.

 

Purchasing stocks allows stockholders to gain a small share of a company’s ownership with the ability to earn money from dividends. As part owners of a firm, stockholders are given voting rights during stockholders’ meetings. More importantly, stockholders are given a share of the income generated by a firm through dividends.

 

However, the purchase of stocks is not the only way an individual can earn a profit. Trading stocks can actually yield more income for an investor. For example, an individual who buys a share of stocks for a low price and then sells it for a higher price tag gains additional income. There are also investors who opt for futures stocks, which means they sell a stock for an agreed price at a future date.


Then there are investors that sell covered calls. With covered calls, holders of stocks can generate extra income and lower the volatility of their portfolios. With covered calls, an investor sells call options on a publicly traded stock. Investors who have a short-term neutral view on the stock – meaning the investor does not expect the price of the stock to fluctuate in the next couple of months – are often those that employ this strategy.

 

An investor can sell a stock currently priced at $25 for a strike price of $26. If the shares trade below the strike price, the call option will expire and the investor keeps the premium. The same case happens if the share prices fall. However, if the shares rise above the strike price, the option is exercised but the investor’s upside is kept at $26.

Making a covered call is an easy way for stockholders to earn extra income. With the help of websites that have covered call services like Barchart.com, stockholders can have a better idea concerning their covered call options. For more information about covered calls and stock market investing, visit Barchart’s website at www.barchart.com.

Keith Brown is a Wisconsin boy with a penchant for numbers. He is a stock market fanatic that enjoys learning as much as he can about the market. His number one resource is Barchart, which allows him to provide advice to beginners and pros. Other than this, he enjoys watching football and hanging out with his girlfriend in Madison.


Keith Brown is a Wisconsin boy with a penchant for numbers. He is a stock market fanatic that enjoys learning as much as he can about the market. His number one resource is Barchart, which allows him to provide advice to beginners and pros. Other than this, he enjoys watching football and hanging out with his girlfriend in Madison.

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