Show Me the Money: Covered Calls & Naked Puts for a Monthly Cash Income
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Show Me the Money: Covered Calls & Naked Puts for a Monthly Cash Income
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As an investor you have stocks in your portfolio. Those stocks, individually, will go up, down or remain about the same. Nothing really you can do about that. Market forces and corporate actions beyond your control will cause fluctuations in the value of your holdings.
But......
There is one important action you can take that will put cash in your brokerage account, today and month after month as time rolls by.
Selling Covered Calls and Naked Puts is a stock market strategy favored by many savvy investors. Here s how it works. Take one of your stocks, Stock ABC, which has a market price of $29. If you will agree to sell that stock (a Call option) for $30 on the third Friday of next month the market will pay you X amount of dollars today (the option premium). That s the money that you are currently leaving on the table. The premium X varies by stock and typically is two to three percent of the stock price.
Think about what can happen when you sell the option. Only one of two things will happen. If the stock price of ABC is above $30 on the third Friday you sell it for $30. That will happen about 30% of the time. The other possibility is that ABC is selling for $30 or less on the third Friday. In that case the option expires and you can sell another Call.
Either way the option premium Real Cash Money is in your brokerage account ready to be spent or reinvested.
Continue the process month after month for a constant cash income from your portfolio.
The Naked Put strategy also gives you immediate cash. Using the same example with Stock ABC, which is in your portfolio and has a market price of $29, if you agree to buy additional shares at a discounted price of $27.50 on the third Friday of next month (a Put option) the market will pay you Y amount of dollars today (the option premium). If the stock price is above $27.50 on the third Friday the option expires and you can sell another Put, generating more cash income. If the price does dip below $27.50 then you buy the additional shares and can now sell more Covered Calls. The put premium Y varies by stock and typically is one to three percent of the stock price.
This book will give you the basic skills to master the art of selling Covered Calls and Naked Puts.
Ron Groenke has developed software based on the investment concepts in his books. A free 21-day trial is available at RonGroenke.com
