|
|
|
The strategy is very similiar to selling an option on a piece of real estate. For example, Ill give you $10,000 now, if you allow me to buy your property 6 months from now at a set price. If I choose not to exercise my option, you keep the money and we go our seperate ways. With a stock, if I buy 1,000 shares of ABC OIL at $10 and the stock goes to $11 in the following month. I can sell someone the right or option to buy the stock from me six months from now at $12.50. For that right or option, the option buyer has to give me some consideration, similiar to the above real estate example, lets assume it is .50 per share or $500. The $500 is immediately deposited into my brokerage account, but an option position also shows up on my statement. I can not sell the stock prior to 6 months unless I buy back the option in the open market. The option price can fluctuate from day to day, therefore, I typically hold my stocks until expiration. Six months from now, two things can happen. One, the stock goes above $12.50 and the person calls me out of the position, which I am more than happy to do since I bought it at ten. Second, the stock has declined below $12.50 and the option holder is holding on to a worthless option. The option holder would not call the stock from me at $12.5 when he or she might be able to buy it in the open market at $11.50. I then start the process all over again and write the calls again. Lets examine what I accomplished with this strategy: 1. I hedged my position by 5% or $500 2. I set a strict sell price that I was willing to let the shares gor for, $12.50 3. I generated income that I could enjoy or reinvest. I can not tell you how happy this strategy has made me since the crash of 2000-2001. The strategy has helped me keep my head above water in this depressing market. A good friend of mine is a computer programmer. He also shares a passion for covered call writing and has written a program that is in beta testing. I am his BETA Dummy. So far, the program has saved me countless hours of research and has narrowed my focus to a short list of 5-10 natural resource stocks to add to my portfolio quarterly. In future articles, Ill discuss some of my picks and income generated from the covered call strategy, plus provide a link to the option software. As a reminder, make sure you know what you own and consult with a tax professional or adviser before investing your hard earned money! |
加入最爱