Stock Investing Strategies

Stock investments


Advantages of Covered Calls

One very profitable strategy which all investors can do is called writing covered calls. 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. The major disadvantage of selling calls is that you do risk being forced to sell your stock in the future. However you do get paid a premium to take on this additional risk.

Why can this be such a powerful strategy? Well I sell them all the time for these reasons.

1. Cash Flow

Covered call writing It is the best way to produce some monthly cash flow off of a stock that 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. By buying stocks that have great fundamentals you are getting into a position that is likely to go up as time goes by. This means that while you are making money selling covered calls you would also be making money on the appreciation of the stock.

Also by combining it with dividend paying stocks can be another way to maximize your profit. 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 what I love about the strategy; it combines the long term passive approach of investing with the cash flow you get from trading.

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