Writing Stock Options for Income

Writing Stock Options
for Income
BY
WWW.OPTIONS-TRADING-EDUCATION.COM

http://www.options-trading-education.com/23990/writing-
stock-options-for-income/
Selling calls or puts on stocks that you
own is called covered options trading.

Writing stock options for income is a
time honored way to gain from stocks
that you own.

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The way writing stock options for
income works is that you own a few
hundred shares of a very stable stock.

You know that it very unlikely that the
price of the stock will change very
much.

So, you sell call options on the stock.
This is referred to as writing options.

You do not expect to have to sell the
stock as it is a very stable stock.

However, there are options available
on your stock.

These options contracts pay a
reasonable amount for the right to buy
100 shares of your stock at any time
within the contract period.

Because you will probably not have to
sell the stock in question you will
simply gain a little income from writing
stock options for income.

Here is a little about how options work
and someone who own a stable stock
can make money in this manner.

Call Contracts

In selling American style stock options
the buyer has the right to exercise the
options contract at any time up until
contract expiration.

This differs from European style
options in which the buyer can only
exercise the contract at expiration.

The buyer will only do this if the price
of the stock raises enough for him to
make a profit.

Thus when you are writing stock
options for income you will want to
analyze your stocks and only sell call
options on stocks that you believe will
not go up in price during the contract
period.

The beauty of limiting yourself to calls
when writing stock options for income
is that you will never lose money.

If the stock price goes up you will have
to sell the stock and could even miss
out on a big price increase.

But you will be compensated to a
degree by the premium that you get for
selling the call contract.

Stocks that Trade in
Channels

There are many stocks that trade in
channels. They are strongly influenced
by interest rates or other factors in the
economy.

Thus they go up and down according
to external events.

If you have owned one of these stocks
for years you will typically have a clear
idea of how high the stock will go and
how far it will fall in the coming
months.

It is obvious that if you want to keep
the stock and still make money that
writing stock options for income with
calls will only work when you believe
that the stock is nearing the top of its
trading channel.

Traders who do not know the stock as
well as you will often buy calls on the
stock because they believe that the
stock will continue to rise.

Because your analysis is more
informed you can make money writing
stock options for income by selling
calls at the top of the channel.

Add this income to the dividends that
you receive and you can earn a tidy
recurring income by stock option
trading with stocks that you own.

Writing Stock Options for Income

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