Covered Calls during volatile times

Finance Articles | April 1, 2009

Covered calls can be a great way to profit when the stock market is trending sideways. If you don’t know which way stocks are going to go it isn’t a bad idea to sell some calls on strong stocks.

Covered calls can be a great way to profit when the stock market is trending sideways. If you don’t know which way stocks are going to go it isn’t a bad idea to sell some calls on strong stocks.

Some reasons Selling Covered Calls can be a good idea are.

1. Monthly Income

Selling calls is a nice way to make a monthly income from the stock market. If you are a dividend investor a 2-5% cash flow after a year might seem good enough. Forget about dividends covered calls can normally produce a profit of 2-5% a month if you do it right.

2. Non Trending

There is no need to look for a trending stock and attempt to ride it all the way up. Selling covered calls allows you to profit from the stock market even if it is not making new highs. The only thing you need is for the stock not to move down too much.

3. There are good long term investments

There are always good investments in the stock market that you can afford to buy and hold for a few years. Why not buy a strong ETF and sell few calls on the stock while it is going through a sideways trend.

4. If the markets recover you will be in a good position

If you buy some strong stocks to sell calls on and then the market starts making new highs, well you are going to be in a spot where you own a stock and the markets are going up. You can always stop selling calls on it and just enjoy the benefits of a rising market.

Of course if the markets start heading down you can stand to lose a lot so it might be wise to have some point where you are going to limit your losses if you are wrong.

For more on covered calls visit http://www.stocks-simplified.com/covered_calls.html

For more on the stock market visit http://www.stocks-simplified.com

Article Tags: Covered Calls, Stock Market

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ABOUT THE AUTHOR

When I was young I wanted to learn how to trade the stock market. So I traveled around the country listening to professional traders talk about how they are making money in the market. Now I understand how easy it is to make money in the stock market and started a site http://www.stocks-simplified.com to help others learn.