Use Covered Call Writing To Increase Yield

Covered call writing options is an investment strategy that can help to limit your risk. They can be so effective and safe tools that big financial institutions use them along with regular day traders. They can be used in any market situation, whether the market is up or down.

Choose your stocks carefully when using them for options. Top quality stocks with good dividends and high earnings per share make the best choices for options. Research them and know their story as well as any risk involved.

To be successful at it you must become knowledgeable and skilled in this area. The basic idea of writing a covered call is when you buy some shares of a stock, then write or sell call options against those shares for profits. You can do this with stocks that you already own as well. The profit that you make is called the option premium. Upon expiration, you have a choice either to sell your shares and keep the premium, or keep the shares and write or sell more options for the next expiration date.

When stocks get in a down trend fear not, you can handle it with options. Marrying puts with calls is a practice to hedge against the downside. You can use puts when you think the stock will go down or to help hedge against the downside. Profiting when a stock moves in either direction helps protect your investments and limits risk. There is always risk when it comes to investing, the key is to manage it and have less of it.

Statistics show that close to 90 percent of options end up expiring flat and worthless. This is good for the seller. At expiration time if your option has not been exercised then it will become flat and you will get to keep the premium.

In options as with all trading ventures, one must have a good trading plan ahead of time. Write down what you will do when shares go down or when they are in an uptrend. Watch the volatility index as this tells clues to what is going on in the market and can effect the price.

Covered call writing options is a good investment strategy that is beneficial in limiting risk and loss of capitol. It is possible to earn 3 to 10 percent a month using this strategy wisely. Always mange risk as this is a huge part of successful trading. Gain plenty of knowledge and skills before attempting to trade with this strategy. There is a lot of good information out there. Do the homework and trade intelligently.

This cool site has a free newsletter on covered calls. Over 83% of option account holders at Charles Schwab write covered calls.

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