How to Earn Monthly Income with Covered Calls
Monthly income can be earned by selling call options against stock that you currently own in your brokerage account. This income can be used to supplement any earned income or can be used for additional investments.
identify a stock of which you already own at least 100 shares. Ideally, you would own at least 500 shares since the commission on the smaller number of shares will comprise a much greater proportion of your potential profits.
Determine if the stock is optionable. This can be decided by typing in the stock symbol at www.cboe.com and seeing if options are available. Alternatively, you could type in the stock symbol on your brokerage’s website and click on the options chain tab to see if any options show up.
Find a strike place that is close to the current price of the stock. This strike price may be a few dollars above or below the stock price.
Determine if you are bullish or bearish on the stock. If you think the stock might go down between now and option expiration, consider selling the call on the lower strike price. If you think the stock will increase, sell the higher strike price.
Once you determine the strike of the call you wish to sell, enter a limit order at about the midway point between the bid and the ask if you want a reasonably high likelihood that the trade will execute.
Wait patiently for option expiration. If your stock is called away, you may have to purchase additional stock or another stock to repeat this process on a monthly basis.
Monthly income can be earned by selling call options against stock that you currently own in your brokerage account. This income can be used to supplement any earned income or can be used for additional investments.
- identify a stock of which you already own at least 100 shares. Ideally, you would own at least 500 shares since the commission on the smaller number of shares will comprise a much greater proportion of your potential profits.
- Determine if the stock is optionable. This can be decided by typing in the stock symbol at www.cboe.com and seeing if options are available. Alternatively, you could type in the stock symbol on your brokerage’s website and click on the options chain tab to see if any options show up.
- Find a strike place that is close to the current price of the stock. This strike price may be a few dollars above or below the stock price.
- Determine if you are bullish or bearish on the stock. If you think the stock might go down between now and option expiration, consider selling the call on the lower strike price. If you think the stock will increase, sell the higher strike price.
- Once you determine the strike of the call you wish to sell, enter a limit order at about the midway point between the bid and the ask if you want a reasonably high likelihood that the trade will execute.
- Wait patiently for option expiration. If your stock is called away, you may have to purchase additional stock or another stock to repeat this process on a monthly basis.