Covered Calls

The first conservative and dependable income-generating option strategy we will examine are covered calls. In simplified form they work like this:

Own Stock (100 shares or more)

Sell an out-of-the money call(s) against the stock (One call contract for every 100 shares)

Receive a premium for selling the call(s)

Wait for the option to expire. If it expires out-of-the-money you will own the premium free and clear. If it expires in-the-money you will be called out and you still get to keep the premium.

Consider this: The covered call is similar to a landlord who rents out her property for monthly income. In this analogy, the owned stock is the property, the premium received is the monthly rent.

For additional details on Covered Calls, click on the following:

Covered Call Details

For a very interesting variant of the covered call technique using deep-in-the-money calls click on:

Deep-in-the-money Covered Calls

To learn about Exchange Traded Funds that engage in covered call writing, see:

Covered Call ETF's