For years getting stock and keeping it until you retired or possibly until the share price had gone up considerably had been the most popular approach. However, with stock markets domestic and even abroad in unclear terrain quite a few people are starting to seek out another answer to the ‘buy and hold’ stock methodology.

Envision there exists a way to always cash in on holding the stock long term. One such technique is simply by writing covered calls on the securities you already possess. Writing covered calls or selling call options allows you to generate a reoccurring source of income by giving an individual the right to buy your stock. A reward to this option trading strategy is you could apply it without the need of buying completely new shares. Providing you own a minimum of 100 shares of any one stock you could start creating a supplementary monthly premium right away.

Inside of a market which is moving up or even sideways, selling covered calls could be a significantly rewarding investing strategy. The less action the market or simply your stock has, the more unlikely that you will be to be ‘called out’ if writing covered calls. Volatility will be your enemy when ever selling covered calls as a strategy. Even so a stock might hover around the same exact price for an entire year and you could possibly still create profit from maintaining it every single month. Simply speaking; you don’t need to have the stock go higher to make money with this strategy.

Now what goes on in the event the market does indeed venture lower? You can normally get back the call options you sold thus closing out the position. Just in case things grew to be much too serious, the opportunity exists of selling the shares of stock after you have bought the call options back. Don’t wish to sell your stock despite the fact the market’s steering south? Think about getting a put option which would increase in value as the price of the stock diminishes. Buying a put during this scenario will probably likely be more of an insurance policy rather than a wealth creation strategy.

So if your stock and also the market on the whole head into unfavorable territory, just how might you recognize when to acquire the call option back and consider perhaps selling the stock? Very easy computation: any premium you acquired after you sold your calls would be the primary breakeven point. Receive $150 through selling one contract ($1. 50 x 100) then your breaking position will be $1. 50 below what the stock was initially when you sold the covered calls.

Whatever the amount a single option was initially sold for, here it was $1. 50, becomes the threshold to how far the stock can fall before your profit from writing the calls goes away. For those who have been writing covered calls with a stock for longer than a month your general breakeven could possibly be lower if you tally up the monthly revenue generated since starting up this strategy.

Keep in mind when talking of selling covered calls, we have not made mention of any sort of dividends received from possessing your stock. For our purposes we don't consider dividends as a strategy since you obviously have simply no control when and if a corporation makes a decision to issue dividends to its stock holders. Selling call options as a regular money making element to your portfolio can be achieved for anyone who is willing to put in the time to practice honing your techniques. It may seem like a method which is only for the pros, but you can certainly grasp selling covered calls with consistency together with endurance.