Covered Calls


Many investors use covered calls to generate income on stocks they own that they don't expect to rise much in the short term. Covered calls, thus, can be a very useful option strategy to enable a trader to make money when they otherwise can not. Covered calls are rather simple strategies. It involves owing stock and selling a call option with a higher strike price than where the stock is trading. If the stock remains below the strike price by expiration, the investor keeps the options premium, which effectively lowers the cost of the stock. Therefore, the call would provide some downside protection as well as generate income. If the stock is above the strike price at expiration, the call would be assigned and the investor would sell the stock at the strike price (which, again, is a higher price than where the stock is trading, so the investor earns a profit.) 

Covered calls can be great strategies for investors. Here's an eBook on option trading that explains covered calls as well as 5 other options income strategies. The eBook is free and it's worth a read if you do your own investing.