Instant Cash Flow Income With Covered Calls by Danny Schneider

Author:Danny Schneider [Schneider, Danny]
Language: eng
Format: epub
ISBN: 9781626754614
Published: 2013-12-15T00:00:00+00:00

Buy and Hold Covered Call Strategies

Most investors have, at one time or another, held a “flat” stock---sometimes for years.

One that comes to mind as this is written is Microsoft, which has been flat, trading in a relatively narrow range, for years.

It is also common to own shares of a “legacy stock”---possibly many shares of a stock that was inherited.

It is a stock that you are not interested in selling.

However, it is not making any money for you either.

Covered calls are a great way of “renting out” your flat or legacy stocks to pocket premiums the entire time!

Here is an example:

• You have a stock in your portfolio.

• You paid $20.00/share for it.

• It has been trading in a range between $20.00 and $28.00 for years.

• Every few months or so you sell an out-of-the-money $30.00 covered call for $1.50/share.

• You never lose the stock because it does not reach $30.00 but it is really nice pocketing the premium!

• It’s kind of like you have created your own stock dividend program!

Now you only want to do this, of course, if you don’t mind being forced to sell your stock if something dramatic happens and your stock shoots up to $30.00/share.

However, I think most people would be happy as heck to sell their $20.00 stock for $30.00 plus pocket the premium for selling the call.

If you really still want the stock, just buy it again at the new price.

In fact many traders, including myself, now never just sell a stock outright.

Why not, before you sell the stock, sell a covered call for next month with a stock price lower than where your stock is currently trading?

Your call will almost surely be exercised—meaning your stock is sold. You will make more this way than if you simply sold the stock outright.

Also, remember that when you own a stock and sell a covered call, you still receive all the advantages of owning the stock such as dividends, voting rights, stock splits, annual reports, etc.

In the case of a stock paying dividends, as long as you own it for at least a quarter, the dividend is added right into your profit (ROI).

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