Can Options Strategies (Like Covered Calls) Provide Me with Cash Flow from the Stock Market?
There are many ways to obtain cash flow from the stock market. Options strategies are an effective way to do this. Covered calls are good for earning a profit because you do not have to wait for market volatility. In fact, you can even generate cash flow in a stagnant market!
Here is how this works: A covered call involves selling call options against shares of a stock that you own. In other words, you are selling your right to sell stocks at any moment for the market price to somebody else (the buyer). The buyer receives the right to purchase your shares before the options contract expires at the strike price (a predetermined price). In exchange for this, you (the seller) are paid in cash (premium) when the option is sold. Even if the option is exercised, you get to keep the money that has been paid to you.
Why is it called a “covered” call? The word “covered” comes from the fact that your potential obligation is already covered due to ownership of the underlying stock. If you keep the shares of the underlying stock, the extra income comes in through the option premium. This strategy works best when the stock price remains lower than your strike price. By doing so, your options will expire worthless and you will be able to keep the premium AND the shares of the underlying stock. This is a recurring strategy that you can use on a monthly basis.
If the stock price exceeds your strike price, the buyer will be motivated to exercise the option and take your shares away. You should not be worried about the shares increasing in value but you don’t want the value to be high enough to hit the strike price of your covered call. The key to success here is to choose a strike price that will give you sufficient gains without feeling bad about your stock’s shares getting called away. You profit from the difference between the stock price and the strike price in addition to the premium you obtained when you sold the covered call.
It will take some time to get used to successfully executing covered calls on a consistent basis. Covered calls are tricky at first and it takes time to fully understand the buying and selling process.
Do you have other options strategies that you use to generate cash flow from the stock market? Share them on social!
Used correctly, stock options can increase your profit potential exponentially while also reducing your risk significantly. Our Rich Dad Education trainers will introduce you to options basics and explain how you can control a stock for a fraction of its price, profit from stock you don't own, and make money when the price of a stock is barely moving at all.
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