No investment strategy is right for all investors. Investors should research and investigate alternative investment strategies. Listed below are ten reasons why an investor might consider using covered call investing as part of an overall investment strategy.
1. Supplement Income: – CD rates too low? Are stock dividends not producing enough income? Investors can write covered call options to supplement their income. Even on a stable stock, an investor could potentially receive a 6% annual return on their covered call premiums.
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2. Increase Cash Flow through Compounded Return: – A simple secret to financial success: add funds to a portfolio on a consistent basis. Invest the income from covered calls into more stock shares. This, in turn, may allow an investor to sell more covered calls.
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3. Retain the Rights of Stock Ownership: – If an investor sells covered calls, they still retain all rights of stock ownership unless and until the options are exercised. This means the investor will still received the dividends and can still vote their shares/attend meetings.
4. Decrease Risk: – As a stock goes down, the call option profit goes up, partially hedging the position. Covered calls provide downside protection – even if the stock decreases, the covered call investing position can still generate a positive return.
5. Take Profit: – “If stock ABC goes up x%, I will sell.” If an investor plans on selling at a certain price anyway, he/she can get some of that profit immediately through covered calls. They can also boost their profit with the premium.
6. Portfolio Stability: – On the plus side, covered calls mitigate loss. On the minus side, they limit profit. Taken together, these factors add some stability to an investor’s portfolio. Conservative investors generally consider stability to be a good investment philosophy. It should also be noted that covered call investing positions can be rolled up as a stock price increases enabling the position to participate (partially) in the stock’s price increase.
7. Name the Return: – Given your cost basis, dividend yield, covered call premiums, and commissions; you can easily calculate your potential return if the call option is executed. And if the call option is not executed, the covered call investing position can generally be entered again.
8. Plan the Sell Date: – Want to push off a sale until next calendar year? Qualify for Long Term Capital Gains? Covered calls are a good way to capture some profit and push out tax consequences. Remember though, options can be exercised early.
9. Cut the Loss: – Own a down stock, which is expected to eventually come back? Covered calls are a way to generate some cash income while an investor waits for the recovery. Time is on the investor’s side when selling options. If an investor has turned bearish on the stock, it might be a good idea to sell for the loss or buy protection or “stock insurance” with a put option.
10. Easing into Options: – Covered calls are a relatively safe, conservative way to enter into the world of stock options. It’s important for an investor to remember what their investment goals are. Not all investor situations are a good fit for covered calls. An investor can learn more before you leap into more risk option investment strategies.
For more information about how to identify and research great option trades, visit the PowerOptions website. There you will find the data you need to make quick, clear, and informed decisions. You can trade knowing you have found the best investment. Also, PowerOptions will allow you, with a few quick clicks, to quickly and accurately compare trades. PowerOptions‘ premium customer support is second to none in the industry. PowerOptions can be easily contacted when you need them at their toll-free number to answer customer questions. Call them now toll free at 877-992-7971.
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PowerOptions‘ sister company PowerOptionsApplied provides expert stock option trading recommendations. PowerOptionsApplied specializes in covered calls, naked puts and iron condor stock options strategy recommendations. PowerOptionsApplied provides a 30-day risk free trial of its service.
[tags] CD, stock dividends, cost basis, dividend yield, commissions, Long Term Capital Gains, stock insurance, covered call investing, covered call investment strategy, covered call options, investment strategy, iron condor, poweroptions, stock insurance, stock option trading, stock options [/tags]