Own Stock for Free by Repeatedly Selling Covered Calls
How would you like to own stock for free. Well, you can effectively do so by repeatedly selling calls against the stock you own. You already know about covered calls. Every time you sell a covered call you receive a premium. If you are not called out, you do it again. Do it enough times and the amount you receive in premiums can be greater than the price you paid for the stock. Now, that’s an enlightened way to think about covered calls. Let’s look at an example. Henry has 100 shares of XYZ in his IRA account that he originally bought for $20/share. He has embarked on a conservative covered-call program with this stock and sells far out-of-the-money calls against XYZ four times a year, averaging $0.25 for each premium received. Henry effectively reduces the cost of his shares by $1.00 every year. Henry desires to hold XYZ for the long term. After 10 years his effective cost of ownership has been reduced to $10/share. After twenty years, he owns it for free. Think about the potential of this technique for stocks you may wish to hold for the long term. You may even wish to construct a program of covered-call selling using LEAPS to gain maximum premium.
Return from Own Stock for Free to Stock Trading
|
