How To Use Covered Calls In A Volatile Market

While the market has increased volatility due to the tariffs, inverted yield curve and continued political forces, investors need to find a safe place. Here, we look at covered calls to give us some downside protection while producing monthly income.

The Get Rich Investment website doesn’t conceptualize about making money – it’s about how to make money. Among income seekers, covered calls, though still not well known to the investing public, have become an increasingly popular strategy for conservatively generating an income stream from the stock market. A covered call is a stock option strategy in which we write (that is sell) call options against shares of stock we already own in our account or bought specifically for this purpose. A call option simply gives someone else the right to buy your stock at the fixed price for a specified period of time. The sale of call options creates a stream of income whether the stock’s price rises or not. The income is called premium from the sale of the call option.

Even better, covered call writing is a conservative strategy that reduces the risks in a stock ownership. According to the Chicago Board Options Exchange (CBOE), the world’s largest option exchange, writing covered calls is more conservative than merely owning stock. Combined with protective put options, it is possible to construct profitable covered call trades in which the possibility of loss is severely reduced, or even eliminated entirely.

Done properly, covered call writing can produce a consistent income of 3% to 5% per month, with very few losing trades. That’s correct, a 3-5% monthly income from covered calls! And covered call writers don’t have to speculate or be able to time the market. Even new option investors can do it successfully.

Of course, covered call investing is a conservative strategy only if trade selection and management are conservative. Buying poorly run or underperforming stocks and running low probability trades will either reduce returns or turn some trades into losers. But there is no need to take any but small losses and those are rarely.

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