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A very popular way to generate extra income on the Stocks in your Portfolio is "Covered Calls" where you SELL Call Options against some of the Stocks in your Portfolio to earn the Premium you receive. You do this only for the Stocks that you are willing to sell at the right price to generate a Profit or get out of a position you no longer want to own.
And because you can do this 4 to 5 times a year, the amount of the Proceeds you take in from selling the Calls can mount up to substantial sums. It is a simple procedure, so lets take a look of how to accomplish our goal...
And because you can do this 4 to 5 times a year, the amount of the Proceeds you take in from selling the Calls can mount up to substantial sums. It is a simple procedure, so lets take a look of how to accomplish our goal...
Step # 1. - Identify all the Stocks in your Portfolio that you would be willing to SELL at the right Price to either generate a Profit or to get out of your Portfolio.
Step # 2. - From your list of Stocks you are willing to SELL, you need to find the Stocks that have Options available on them. To do this, you can go to your broker's website and enter the Stock in their research area to see if the Stock has Options. Or, you can go to the Chicago Board Options Exchange (CBOE) website and enter your Stocks to see if they have Options.
Step # 3 - You now have a list of Stocks you are willing to SELL that have Options. Next, you need to decide the PRICE for each Stock that you are willing to SELL the Stock.
Step # 4 - Using your broker's website or the CBOE site, enter the first Stock on your list and select Options to see what "Strike Prices" are available for your Stock's CALL options. As example, enter APPL in the Stock Symbol, then select Options to view all the individual "Strike Prices" under the "CALL" heading.
Step # 5 - You will notice that there are several Expiration Dates offered. The Expiration Date is when the CALL Option expires and is no longer valid. You want to look at the Expiration Date that is about 3 months from today's date. As example, if this is Feb 20, you want to look for a CALL Option that Expires 5/21
Step # 6 - Now that you have found the "Strike Prices" and the Expiration Date, you need to decide what "Strike Price" you would be willing to SELL each Stock for. As example, If you own 100 Shares of ABC at 45 and would be willing to sell it at 50, you would look for a "Strike Price" at or above 50 in the Expiration Month that is 3 months from today. If this is Feb. 20, you would find a CALL option with a "Strike Price" of 50 that expires May 21.
Step # 7 - Now that you have found the CALL Option you will be SELLING, you look at the "BID" Price for that Option. This is the Price that someone is willing to PAY you for that Option. Lets say our ABC Stock is currently selling around 46, which means you have a 1 point profit on your 100 shares. You see that the "BID" Price for the CALL Option with a "Strike Price" of 50 that expires 5/21 is $2. That means someone is willing to pay you $2 per 1 share or $200 for the Call Option ( which represents 100 Shares ).
Step # 8 - Now you are ready to enter your order to SELL 1 CALL Option on your ABC Stock with a 50 "Strike Price" and 5/21 expiration date at the "Bid" price of $2. When the order is executed, your account will be credited with $200, less commissions.
Step # 9 - There will be one of two outcomes to this strategy. #1. Your Stock's price will stay under $50 at the CALL Option expiration date and you will retain your Stock and book the $200 you collected from SELLING the CALL. #2. Your Stock's price will exceed the "Strike Price" of the CALL Option you SOLD and you will have to give up your Stock at the price of $50 per share, realizing the Profit you were willing to take on your Stock, as well as booking the $200 you collected.
Step # 10 - In the event that you do not have to give up the Stock you were willing to sell at the "Strike Price", you would start all over again and SELL a CALL Option with the "Strike Price" you were willing to sell your Stock for with an expiration date 3 months from that date. You could keep doing this until your Stock's price finally gets up to the price you are willing to sell it for. In this case, you could collect $800 per 100 shares of stock over a 12 month period by SELLING the CALL Options 4 times.
Step # 11 - Repeat all these steps for each of the Stocks on your list of Stocks you are willing to sell at prices you are willing to take for each Stock....thereby realizing "Extra Income for your Stock Portfolio"....You must have an Option Agreement and be eligible for "Covered Call Options" with your Broker. As always, check with your Financial Advisor before you make any investments
Always consult with your Financial Advisor before entering into any Financial Transaction and this is no exception. Take this Option Idea to a Professional who understands Options for their consultation. You must also have an Option Agreement with your Broker.
Step # 2. - From your list of Stocks you are willing to SELL, you need to find the Stocks that have Options available on them. To do this, you can go to your broker's website and enter the Stock in their research area to see if the Stock has Options. Or, you can go to the Chicago Board Options Exchange (CBOE) website and enter your Stocks to see if they have Options.
Step # 3 - You now have a list of Stocks you are willing to SELL that have Options. Next, you need to decide the PRICE for each Stock that you are willing to SELL the Stock.
Step # 4 - Using your broker's website or the CBOE site, enter the first Stock on your list and select Options to see what "Strike Prices" are available for your Stock's CALL options. As example, enter APPL in the Stock Symbol, then select Options to view all the individual "Strike Prices" under the "CALL" heading.
Step # 5 - You will notice that there are several Expiration Dates offered. The Expiration Date is when the CALL Option expires and is no longer valid. You want to look at the Expiration Date that is about 3 months from today's date. As example, if this is Feb 20, you want to look for a CALL Option that Expires 5/21
Step # 6 - Now that you have found the "Strike Prices" and the Expiration Date, you need to decide what "Strike Price" you would be willing to SELL each Stock for. As example, If you own 100 Shares of ABC at 45 and would be willing to sell it at 50, you would look for a "Strike Price" at or above 50 in the Expiration Month that is 3 months from today. If this is Feb. 20, you would find a CALL option with a "Strike Price" of 50 that expires May 21.
Step # 7 - Now that you have found the CALL Option you will be SELLING, you look at the "BID" Price for that Option. This is the Price that someone is willing to PAY you for that Option. Lets say our ABC Stock is currently selling around 46, which means you have a 1 point profit on your 100 shares. You see that the "BID" Price for the CALL Option with a "Strike Price" of 50 that expires 5/21 is $2. That means someone is willing to pay you $2 per 1 share or $200 for the Call Option ( which represents 100 Shares ).
Step # 8 - Now you are ready to enter your order to SELL 1 CALL Option on your ABC Stock with a 50 "Strike Price" and 5/21 expiration date at the "Bid" price of $2. When the order is executed, your account will be credited with $200, less commissions.
Step # 9 - There will be one of two outcomes to this strategy. #1. Your Stock's price will stay under $50 at the CALL Option expiration date and you will retain your Stock and book the $200 you collected from SELLING the CALL. #2. Your Stock's price will exceed the "Strike Price" of the CALL Option you SOLD and you will have to give up your Stock at the price of $50 per share, realizing the Profit you were willing to take on your Stock, as well as booking the $200 you collected.
Step # 10 - In the event that you do not have to give up the Stock you were willing to sell at the "Strike Price", you would start all over again and SELL a CALL Option with the "Strike Price" you were willing to sell your Stock for with an expiration date 3 months from that date. You could keep doing this until your Stock's price finally gets up to the price you are willing to sell it for. In this case, you could collect $800 per 100 shares of stock over a 12 month period by SELLING the CALL Options 4 times.
Step # 11 - Repeat all these steps for each of the Stocks on your list of Stocks you are willing to sell at prices you are willing to take for each Stock....thereby realizing "Extra Income for your Stock Portfolio"....You must have an Option Agreement and be eligible for "Covered Call Options" with your Broker. As always, check with your Financial Advisor before you make any investments
Always consult with your Financial Advisor before entering into any Financial Transaction and this is no exception. Take this Option Idea to a Professional who understands Options for their consultation. You must also have an Option Agreement with your Broker.
