Selling Covered Calls

Selling covered calls is a very effective strategy in the stock market. It lets you make continuous cash flow from a stock that you already own and can have a huge effect on your annual return. So how do you set up a covered call trade?

There are three steps you have to take.

1. Find A Stock

The first step to opening up a covered calls trade is to find a stock that you would not mind holding onto for a while. The stock should definitely be very strong when it comes to its fundamentals. It is also a bonus if the stock has great technicals as well. Buying a stock that is trending down could later turn into a decision you regret.

If you already own a few stocks then you can simply sell calls on those.

2. Sell The Call

Once you own a stock the next step is to simply sell the call on it. The further out of the money the call option is the less likely you will get called out because the stock has to make a bigger upward move before the option becomes in the money.

But the further out you sell the less you will receive so it is up to the individual investor what they want to sell.

3. Wait and Sell again if you still own the stock

If you still own the stock and did not get called out why not sell another call and collect more option premium. The real advantage of this strategy is consistency. If you can make a small return every month it can definitely add up.

For more on covered call writing visit http://www.stocks-simplified.com/Covered_Call_Writing.html

For more on selling puts and covered calls visit http://www.stocks-simplified.com/selling_puts.html