Investing Basics—writing Covered Calls For Monthly Income

The stock market has created many opportunities for millions of investors. There are many investing strategies investors use to make money; however, to generate steady income monthly, “writing covered calls” will provide the best result.

How to get started? The first step in getting started is to choose an investing platform. There are copious sites to choose from, so, the need for choosing the best one is crucial. Choose a company with the best rates, “this is very important,” because if the price is too high per share, this will lower the profit. Some reputable sites to choose from include; Scott’s trade, and E-Trade, Ameritrade. There are many more, but these sites are more common, and they do have reasonable prices.

How much to invest? When determining the amount to invest, there are some particulars to keep in mind. The amount of money the company requires to start investing with them, this could range from $500 up to $2500 depending on the company. The stocks that investors choose will play a role in this decision; some people will get cheaper stocks, and thus, will require less money to invest.

What is a covered call? A covered call is the sale of ownership rights, to the option buyer. When writing a covered call the owner is going to get a premium per share. These shares trade in increments of one hundred share contracts. If the calls written and the premium for the call is one dollar per share, the writer will receive one hundred dollars per contract sold. There is a strike price that the owner can sell the call for, and if the price goes over this amount, the shares will get called out by the option buyer. The best-case scenario for the owner is for the stock to remain below the strike price at expiration time. If this happens the writer will keep the stock and premium, if the stock gets called, the writer will have to deliver the stock at the strike price cost.

Basics of writing covered calls: When writing covered calls, there are some key points to keep in mind:

1. Like any other investment, there are risks involved; however, this is a low-risk strategy.

2. If the stock is essential to the investor, do not do this strategy, because the investors can lose the stock.           

3. Volatility is the key, the higher the volatility, the higher the premium.

4. This is a perfect beginner investing strategy, because the risk is low.

Just because the investor loses their shares, this is not detrimental; the investor sill gets the money on the shares they deliver. Just sell the calls at a strike price above cost of the shares, and money will always be made. Premiums plus capital gains equals monthly income.

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