Read rjm77me's blog in RSS
July 25, 2009
Share This
You can create monthly income from the stocks you are going to hold any way. ONE can write or sell calls on the stocks you already own. ONE NEED TO WATCH THE COST OF TRADING WHEN WRITING CALLS.
What are the benefits?
You can create monthly income from the stocks you already own.
Example - I bought STI at 16.02 and immediately sold August 18 call for 60 cents (Gave $60 per 100 share lot) Next day stock decided to take a dip to 14.98 and I kept my cool saying that I have $60 to cover loss. In next three days the stock recovered to 17.05 and the stock option is priced at about $1.00.
This means if I sell the stock now, I have to buy back the option and share the profit with the call buyer. So my plan is to sit tight till third Friday of August and in my own mind I have sold the stock at 19.60 when I bought the stock. What happens between now and August 21 is not known.
One caution - do not let your stock run to ground or more then your stop loss. Your option can also be bought cheaper and will help absorb some of loss. To me it is like creating a monthly dividend and buffering the trading profit or loss. One can buy puts as protection and let your profits run. I use this strategy in my IRA account for 40% of stocks I purchases. I pick stocks based on the risk and reward. This allows me to have a wider range for stop loss.
For Call Options buy I like UTX, NOK, ABT, T, BA, NKE I buy and hold for maximum of 20 days and take profit or loss. I may buy spreads or make a spread after 15 days on a stock running up or down (call/puts).
What are your views and what stocks are you looking to buy call or what stocks for put?
