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Sell Call Options And Make Money At Home
Make At Home Selling Call Options
This article will explain the ďnuts and boltsĒ of selling call options. This is a method that investors employ when they believe that the price of the underlying stock will decrease below their option strike price (prior to the expiration date). You can either utilize this method if you own the underlying stock (covered) or donít own the underlying stock (uncovered or naked). The latter strategy of selling naked calls is similar to renting something you donít own; the appeal of making immediate without investing capital (although risky) is the strength of this option strategy.
If you plan on selling calls, you will need to fund a brokerage account with a minimum of $2,000 and agree to the terms of a margin account. A margin account is a necessary evil if you want to sell calls as there are strict federal and brokerage firm regulations regarding the minimum balance that must be maintained in oneís account in order to execute this strategy. Typically, the margin requirement (account balance) is 20% (in cash or stock value) of the strike price and 100% of the premium received. If the price of the underlying stock increases too much and you DONíT OWN THE UNDERLYING STOCK (naked), your minimum balance requirement will increase and you will get an alert notification (margin call) from your broker requiring you to deposit more funds, liquidate other stock, or close your position by buying-back your options (buy to close) at a loss. If you do not address the margin call within 2-3 days, the brokerage firm will liquidate other stock or assets (without your permission) in order to bring your account into compliance.
As you can see, selling naked calls can get ugly very quickly. I actually recommend buying stock in companies that you want to own for the long term and selling covered calls against them; youíll sleep better, trust me.
Now that youíre all set up, hereís an example of how the strategy works:
Letís say that itís March and you sell ten (10) contracts (1,000 shares of underlying stock) of a call option expiring in April (third Friday) for XYZ Company at an ďout-of-the-moneyĒ strike price of $50 and an option price of $1.50 / share; the stock is trading at $49 / share. You make $1500 immediately ($1.50 X 10 contracts X 100 shares / contract).
Now letís see how much of this you can keep:
Scenario # 1:
If the price of the underlying stock decreases below your strike price prior to the expiration date, you keep all your and the buyerís call option expires worthless. Congratulations, you have done your homework and were successful at making at home! You can do this again the next month (kind of like rent) and make at home for doing virtually nothing. However, before you get too excited, itís not always that easy to make online.
Scenario # 2:
If the price of the underlying stock increases above your strike price at the expiration date, one (1) of the following will occur:
1. If you own the underlying stock, your brokerage firm will sell it at the strike price; hopefully, you sold the call at a strike price higher than your stock purchase
price. I actually prefer to buy the underlying stock at bargain prices, during recessionary times (like now), and make by selling calls (20% - 30% higher) when the stock is trading 20% -30% higher. The worst thing that can happen is that you sell your stock 20-30% higher than your purchase price and you canít execute this strategy next month.
2. If you donít own the stock (naked call), you will want to buy-back (buy to close) your call option (thereby closing / canceling your position) and excusing yourself from all responsibility to buy the stock at the higher market price. The amount you pay for your call will depend on how high the price of the underlying stock rises above your strike price. In most cases, you will end up paying more than you received.
Remember, if you donít close your position, you will be required to buy the stock at the higher market price in order to sell it to the option buyer at the lower strike price. If you donít have either 80% of the value of the stock in cash or other stock that you can liquidate for cash, you will need to add more to your account.
Now if youíre like me, youíre probably thinking that making by selling covered calls against stock that you purchased at 20% discounts is the safest strategy. I happen to really like this strategy if I can buy stock, during recessionary times (like now), in companies that have shown exciting earnings growth (in the preceding quarters) and have new products or services.
If you want to sell covered calls and capitalize on this recession, my recommendation is that you find a way to make in order to buy the stock now. I can show you an online home business that actually made me the to invest pretty quickly (if you like). I know, I know, I by no means am a home business type of guy, as stock and option transactions are my passion! What I found though was a simple and structured online home business strategy that actually began to make me real money. It's called the "Independent Profit Center" (IPC) and it happens to be one of the best online strategies, along with a few of my favorite "spread options", that I've seen to make at home.
What makes this opportunity so unique is the training and support that the company provides; there are no confusing books or CDs to contend with. All training is conducted via a 5-hour video webcast that shows you exactly what and how to make with this business. You will literally have your website up within an hour and be making within 24 hours.
IPC doesn't hide anything from you and you know exactly what this business is about before you apply. If you go to my website, you can join a FREE webinar LIVE online and see why IPC is such a smart and profitable decision that will make you at home. I guarantee that after seeing this webinar you will be blown away by the potential of this new program to make online. I was and have been making at home ever since.
IPC is a legitimate home business that truly works for the average person. The training, support, and proven system are all packaged in a way that will make you significant online within 30 days.
For more information, please feel free to visit my IPC website at www.ExtraIncomeExtreme.com
if you have money to invest and want to double your money in one (1) year visit www.squidoo.com/options103
You could also visit my ďStock Market Crash CourseĒ Blog at www.StockMarketCrashCourse.blogspot.com/ for ten (10) simple ways to trade options and make money at home.