Options
Options allow you to leverage your investments to control more stock with less capital. However, an option is for a specific time period. (Expires 3rd week of each month)
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Buy deep in the money options to avoid high intrinsic value costs which will evaporate with the expiration of time. - Buy options with enough of a time horizon.
Covered call writing:
Objective: You want to buy a stock low and sell an option against it when the stock is high. (when expectations are for a stagnate period in the stock or a slight decline, but you do not want to sell your stock.
Risk: Stock rises and you miss some of the gains.
Example: Buy 100 shares of xyz stock at $90/share. Stock moves to $110. Now sell a $120 option for $5.50. You will receive $550 immediately into your account from the sale of the option (100 x 5.50). If the stock goes above $120 you will be called out and will forfeit your stock and miss out on any of the upside above 120. Your stock profit will be $3,000 (120-90) Your option profit will be $550, thus your total profit would be$3,550. If the stock goes below $120, will not be exercised and you keep the stock and the $550 option profit.
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