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There are many options available claiming extraordinary and fast earning potential. For those seeking a more sophisticated and long term investment strategy, the income oriented strategy known as "covered calls" could be worth considering. This is by no means a fast money strategy, but offers an income potential for anyone, with full tutorials available that guide you through every step of your progression, explaining the advantages, any risks that may occur and the potential rewards.
A call option involves a tradable security that offers the purchaser of it, the right to buy stock at a determined price, known as the "strike price", on or before a stated expiration date. Similarly, the seller of a call option has an obligation to sell stock at a determined price, by the stated date, should a buyer exercise their right. This type of investment strategy involves two transactions, the purchase of new stock or using stock already owned. The second piece requires that a call option is sold against that stock. The combined affects of the strategy with the long term stock and short call option is termed a covered call strategy.
The formula is that one call is the equivalent of long term one hundred shares stock, plus one short call option. This transaction is generally termed a "Buy-write" and is based on the premise that stock is bought and then has a "write" or sells option. The reference to "covered" is applied due to the seller of the option having an obligation to deliver the one hundred shares, should the call option be exercised.
The intricacies of stocks and shares are clarified and become an interesting, learning process in the world of financial investment. Degrees of involvement are determined by individual resources, but the covered call strategy is innovative in its concept and provides the participant with an exciting and potentially long term lucrative income. Most everyone who has seen a movie or read a book on the workings of the stocks and shares market must have been intrigued by machinations of the brokers and traders. This strategy will provide an insight into an investment situation that is able to be developed to meet your specific ambitions.
Investors using the covered calls strategy do not consider short stock, or selling an item that is not owned by them, but do however, short call options, which is the generator of income in this strategy. A reason that an investor would short stock, would be the expectation of it decreasing in value, but with the perception that it could be bought back later, for a lesser sum than which it was sold.
While the covered calls strategy is fascinating and has huge potential financially, for those who are entering this type of financial scenario for the first time, it is imperative that they read tutorials related to it. This on its own, make for an intriguing journey and will take you into a world that for most people is mysterious and remote.
Bob Wilcox is an active investor and jeweler. When not designing pearl jewelry he trades covered calls almost exclusively at BornToSell.com. In particular, he likes their covered call tutorial.
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