If you haven’t written covered calls on your long term stock positions they you are missing out on a very powerful method of making money from a stock that you own. When you sell a covered call you are giving someone else the right to buy a stock from you at a given strike price by a certain date. By writing a call you are risking having to sell your position early. But you would also be given a premium for taking on this added risk.
Why can this be such a powerful strategy? I sell covered calls all the time because of the following reasons.
1. Cash Flow
Covered call writing can be a very powerful way of getting a cash flow off of a stock which you own. Often selling a call in one month can give you just as high of a percentage return then a dividend will give you in a whole year. That is big.
Selling these calls options on a stock can add up over time and be worth any extra risk that they may provide, as long as the overall stock is stable.
2. Combine With Great Stocks
This is a great strategy which can be combined with other methods of making money such as value investing. For instance if you buy a stock which has great fundamentals then chances are it will continue to go up over the long time. This lets you make money two different ways, by consistantly selling covered calls as well as by holding onto an appreciating stock.
Also by combining it with dividend paying stocks can work very well. Dividends give an investor just another way to make money off of their long term investments.
3. Low Maintenance
Selling covered calls can be a low maintenance strategy if you do it right. I sell covered calls all the time and it normally takes me about 5 minutes a month or so to keep it going. That is really the best part about this strategy is that if you do it right it can offer you a passive way to make an income from the stock market.