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Covered Calls in Stock Investment Industry

By Edited Nov 13, 2013 0 0

If you have disposable income and you want to start investing in stocks, you will find yourself with more questions than answers on how and where to start. You will try to look for ways to understand what options are and how they work. Do not worry, there are a lot of websites and online resources that are just a few clicks away from helping you get over your apprehensions. You just have to learn to allot time and effort in reading through tips and pieces of advice from experts to make your decision to invest in stocks a worthwhile endeavor. This is perhaps similar to riding a bike. There are risks involved, but if you can get through your first few bumps and bruises, then you are probably good for the long run. You always are going to have to watch out for the ditches and road blocks though.

One of the first few things you will encounter in trying to understand the investment industry better is the strategy of selling or writing covered calls. This is an approach where an investor sells an option contract while at the same time owning the same number of shares of stock. With all the stock investment strategies, this is considered as one of the safest approaches in the market. Usually it is conducted over a short period since the option contracts have a short lifespan. The classic strike price at which call options are normally sold is above the current price at which the stock is trading. This strategy is very rewarding if stocks play at a certain range and it expires without value. Hence, an investor who can, more or less accurately foresee that a stock will not have any erratic price movement over a certain timeframe in the not so distant future could get great results over time. The investors always have the option of purchasing the covered call at any point back from the market if they have a change of heart because even if stock prices decreases after a written covered call, the investor still earns because his loss is smaller compared to the options premium collected.

One of the things that will greatly be of help in building your investment portfolio and eventually getting that desired monthly passive income are the investment tools in the market. Just like when you were getting used to stock investment, learning the functions and uses of an investment tool like a covered call screener can be similar to purchasing your first high-tech mobile device. It could come with all the bells and whistles but it will take you a few tries to understand how it works. But as you continuously use it, you eventually know how best to use it in your everyday communication needs. Similar to investment tools, you will need to keep on using it and before you know it, you will be convinced that they are indispensable tools in your quest to earn money in stock investment.




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