By Shalo V
Writing call options among the most preferred approaches used by investors globally for generating income from their stocks. But, what does writing call options mean? Here is a detailed explanation of the strategy as well as the technical terms involved:
Let’s say you own some stock options and you decide to sell the right of buying your stocks for a predefined sum of money in a predefined period of time – this is called writing a call option. The person that buys this right will own a put option.
The option expiration day is the day in which the contract ends and the investor that bought your call option will lose his right of acquiring your stocks.
The earning season is the time when companies that are publicly traded show their earnings report per quarter. There are 4 earnings season each year. The earnings season usually starts after one-two weeks of every quarter and lasts between two and six weeks. Though this is a widely practiced norm, the time frames are not sacrosanct.
A company could have different dates when their quarter ends and when they release their earnings. The earnings season is important because it is a period when the stock prices could fluctuate a lot thanks to the released earnings report. The market become volatile, which can be good news or bad news for you, depending upon the kind of investments you have made and call, you have written.
Writing covered calls could be a good solution in these situations.
What Are The Alternatives To Writing Covered Calls?
Another way of earning on your investments aside from writing call options is looking into treasury securities. In treasury securities, you must know that the treasury rates refer to interest rates that investors earn from debt securities issued by the U.S. Treasury.
The argument against treasury securities is that since the annual yield is extremely low nowadays, they may not prove to be very profitable investment options.
For example, in 2011, for a one-year investment, the yield was 0.16%. For 10 years it was 2.64%. So if you had invested $1000 for one year you would have earned $1.6.
So, if you are looking for investment opportunities, you should consider also diversifying your portfolio, owning stocks and writing covered calls on them. Invest in treasury securities if you want to, but don’t put all your eggs in one basket. The idea behind investing is to make money, there is no point focusing on a single option because it is safe, if it offers very low returns.
If you would like to know more about covered call writing and making lucrative stock market investments, please visit www.borntosell.com, for more articles and blogs about covered calls please head on to the borntosell.com blog.