Covered Calls - Increasing Your Portfolio Returns
By: Tony Lassito
Covered Calls
Options are most commonly used by investors for either leverage and
/ or insurance (hedging). As leverage, options allow the investor
to control an equity position without paying 100% of the share
price. For example, rather than going on the open market and
purchasing 100 shares of IBM for $8,257 ($82.57 per share), an
investor could control the same amount of shares at a given strike
price for a fraction of the cost such as the Jan 07 $80 strike with
a total cost of $1,050. As insurance / hedge, options can assist in
protecting against price fluctuations. For example, the same IBM
investor can sell a call against his shares which will reduce the
basis in the equity position by the premium received. In other
words, he has hedged his position against any short term
fluctuations his equity position may experience.
Writing covered call options provide many benefits with the major
reason being collecting premium from the sale of such an option.
The premium collected goes into your account and can then be used
to invest in other positions. The writer keeps the premium
regardless of whether or not the option is exercised. Another
important aspect with selling options is that of time value which
now works for you rather than against you.
Covered Calls are not new and it isn't as complicated as many make
it out to be. It is a viable means of generating consistent income
from your portfolio. If you are not writing options against your
positions you are losing out on money you could be putting in your
pocket each and every month. Keep in mind writing covered calls are
not get rich quick strategies. They are a means of generating
income for the individual investor regardless of their trading
expertise.
Covered Calls are not a get rich quick strategy and often
misunderstood but when used correctly can assist investors in
generating monthly income as well as providing downside protection.
One of the primary sites I use for Covered Call Trading is
http://www.stockmarketcashmachine.com
Tony Lassito is a full time options trader with years of
experience. You can learn more about some of the strategies he uses
at the following Covered Calls website.
How
to Write Covered Calls
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