Making Money With Options Trading
Posted on February 26, 2011 by Anthony Dahl
Options offer the investor a way to control thousands of shares of stock without having to actually buy the shares. These special contracts are a way to use leverage to increase the rate of return on a stock investment. Many investors have trouble understanding call and put contracts so they shy away from them. However, it is worthwhile to take the time to learn how they work because they can be very profitable.
There are many different types of trades that can be put together with call and put contracts. Some can be quite risky for the average investor. There is one play that is very conservative that the typical investor can do well with. This strategy is called the covered call strategy. It is a low risk trade that generates immediate income when you begin the transaction.
Covered calls are such a risk free and easy trade to make it is surprising that more individual investors have not caught on to it. With a covered call trade you will be taking advantage of the power of leverage. Leverage is when you control assets without paying the full value of the asset. With call and put contracts you can control large blocks of common stock without actually having buy the underlying stock. You can buy and sell the stock as if you owned it. Statistically most calls expire out of the money. It is only rare when you must close a position by purchasing the underlying contract. As a seller of call contracts, you can depend on over 90% of your trades ending profitably for you.
In the event the stock is in the money, there is an easy, low cost way to get out of the transaction. You buy the same type of call contract that you sold. This negates the original contract. It is surprisingly rare that this happens however. Most of the time the call contract simply expires worthless.
When you set up a regular process of selling covered call contracts you will have income streaming into your account on a consistent basis. While each individual trade may only earn a relatively small amount, it begins to add up to a substantial income. It is the closet thing to having a money machine that you can think of.
Covered calls are so safe that stock brokers do not even require strict net worth requirements or margin accounts. Other types of trades require the investor to put up collateral for large risky trades.The fact that the stock brokers consider this a safe investment is telling. Information is important when you are considering investments. It is important for the individual investor to understand what they are investing in.
As an individual investor it is year responsibility to understand what you are doing with your money. Once you have investigated the covered call investment technique you will be totally convinced. You will be convinced because only a fool would turn down easy real income. This is real money that you can spend as you wish. It is for practical purposes free money.
For most typical investors, covered call contracts are the only options strategy they need to use. It is a safe, low risk, income producing activity. Anyone with a sizable stock portfolio should be using this method. It is not difficult to open an account online to begin making money with covered call contracts.
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