Why Write
Stock Options?

Stock Options


Stock Options

Stock options are the fastest growing segment of market trading.  Stock options were created by the Wall Street pros to reduce risk.  Stock options are traded each business day in units of 100 shares; fractions of a unit can't be traded.
  • Buying call stock options gives the right (not the obligation) to purchase shares at strike price until the expiration date.
  • Buying put stock options gives the right (not the obligation) to sell shares at strike price until the expiration date.

More about Stock Options

Read "Comparing Stock Options"

Writing Stock Options

If you're after more monthly income, then writing stock options is for you.  The wealthy have been writing stock options for years.  When writing stock options, premium from the sale is deposited into your account the next business day.  You keep the premium regardless of what the stock or option does in the future.

Writing stock options on low priced stock (<$25) creates higher yield than writing stock options on higher-priced stock.  A 60 cent premium on a $10 stock is much better than a $5 premium on a $100 stock.

Warren Buffett said: "If you own equities, over the next twenty or thirty years you'll get a reasonable return... maybe it's 6%, maybe it's 7%.  People who expect 15% a year are doomed to disappointment."  You can make 60% or more per year, compounded monthly, with less risk, by writing stock options.

Writing near-month stock options results in higher yield than writing far-month stock options. Far-month stock options or LEAPS usually can't deliver 5% a month like near-month stock options can.  When you sell stock options there is also a chance that the stock price might go opposite what you expect. The shorter the time to expiration, the less chance of this.

Stock Options x Compounding = Wealth

Cash from writing stock options can compound into great wealth.  Seasoned investors -- those who understand how a 5% gain every month can make them rich, will see incredible wealth-building power in those numbers.

Most investors simply purchase stock with hopes of it increasing in value.  While stock options writers have increased their return significantly, the traditional investor still waits for that big upward stock price move.

Stock Options Safety

Don't want to risk losing money?  The deeper ITM a covered option is, the more likely the covered option is to be exercised, the stock sold, and your cash freed up.  Selling ITM covered stock options helps protect the seller from adverse changes in stock price.

Investors should question "picks" made by others.  Neil Roland of Bloomberg News reports, "More than a quarter of analysts reviewed by regulators bought shares before initial public offerings by companies they covered, and some made as much as $3.5 million by selling their shares while telling investors to buy."  Many advisors use a tactic known as "pump and dump," in which they own stock, then hype it so you'll buy.

Nobody cares more about the safety of your money than you do, you should select stock options yourself.  The Option Yield Report's screened list is essential because it lists the highest yielding stock options, provides opinion and trend analysis on each stock option, and ties online research tools to the options.  Unlike print or email publications that contain obsolete information, online data has breaking news, and current charts and quotes.

Stock Options in your IRA

Writing stock options is safe enough that covered calls are approved for IRAs.  Make up for those years when your retirement nest-egg didn't grow fast enough by writing stock options.

Stock Options -- Covered Calls vs. Covered Puts

If the market is strong, write stock covered call options.

  • Treat stock as a commodity, traded to generate monthly income.
  • It's not important to want to own stock the options are written against as it's to your advantage if the stock's called away.
  • It's important you like the stock's short-term potential and to select stock that's going up ('A' charts).

By writing stock covered call options monthly in a self-directed IRA at 5% gain -- $978 could grow to $341,000 in ten years.  In contrast, in an IRA at a bank yielding 6% interest per year, it would take one hundred years to reach $297,000.  Stock covered call options in an IRA can provide a way to make up for years when your retirement funds didn't grow fast enough.

Many stock options investors know about stock covered call options.  Writing stock covered call options can be a great source of income when the stock market is going up.  But what about times when the stock market is falling?  You could just sit on the sidelines until the stock market turns around, but you need an income stream you can count on every month.

Stock covered put options to the rescue.  Writing stock covered put options allows you to profit from a declining stock market.  When advisors suggest writing stock put options, they generally mean naked puts, which are very risky.  With stock covered put options you have already sold the stock short, so you don't care if it drops sharply.

If the market is weak, write stock covered put options.

  • To "cover" the put options you simply sell the stock short.
  • It's important you have a negative opinion of the stock's short-term potential and to select stock that's going down ('F' charts).

Writing stock options is easy!

The technical details of writing stock options are handled by your broker; you simply place orders and collect premiums.  Since your focus is on monthly income, it's advantageous if the options get called away.  No matter what the market is doing, you make money.

Writing Stock Options FAQ   Writing Covered Options Tips
How to Write Covered Calls   How to Write Covered Puts

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