How To Use Covered Calls For Income

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Using covered calls for income involves the following steps:


1. Own the underlying stock: To implement a covered call strategy, you need to own the shares of the underlying stock. This means you purchase the stock in your brokerage account.


2. Select a strike price and expiration date: Pick a strike price at which you're willing to sell the stock if the option is exercised and choose an expiration date for the option. The strike price should be higher than the current market price if you expect the stock to remain relatively stagnant.


3. Sell call options: Sell call options against your stock position. Each option contract typically represents 100 shares. By selling call options, you receive a premium from the buyer, which serves as income.


4. Wait until expiration: Allow the options to reach their expiration date. If the stock price remains below the strike price, the options will expire worthless, and you keep the premium as income. You're free to repeat the process by selling new call options.


5. Repeat the process: If the options are exercised, and your shares are sold at the strike price, you'll still keep the premium received. If you still want to generate income, you can buy the stock again and continue selling call options.


It's essential to educate yourself further on covered calls, understand the associated risks, and consider your investment goals and risk tolerance. Consulting with a financial advisor or options specialist can also provide personalized guidance.


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