Covered Calls: The Ultimate Safe Income Generator

by Investment U Research 

Do you own stocks? Here's how to get cash right now.

Here's what ordinary investors do: Buy shares and wait for them to go up.

Here's what smart investors do: Buy shares, and then sell call options against every 100 shares that they own.

Why do they do this? There are several reasons, but arguably the most compelling is that it allows you to earn passive income from stocks that you already own. That's right… you can earn passive income just because you have some shares sitting in your account.

The strategy is one of the cornerstones of our trading service Smart Cap Alert and it's something that any investor can do. It's very easy.

And right off the bat, there are five benefits…

• You generate income
• You mitigate risk
• You lower the original price you paid for the shares
• You can use covered calls in any market
• The strategy beats the market averages over time

Here's how it works…

Got 100 Shares? Sell A Call

The first step to trading covered calls is to shake off the notion that options are risky investments – or at least riskier than others. That's not necessarily the case.

In fact, while you will need to get approval to trade them from your brokerage, covered calls are a great place to start, since they're at the simple end of the options chain. And played the right way, it's a conservative strategy, because the shares act as "collateral" for your options. They're known as "covered" calls because you already own the shares – hence the collateral.

In order to execute a covered call trade, you must first own at least 100 shares of a given stock. That's because one option contract is made up of 100 shares.

Then you just sell call options against your long stock position.

Why Trade Covered Calls?

By selling call options against your shares, other investors will pay you cash today in exchange for the opportunity to take your shares from you for a pre-determined price (this is known as the "strike price") over a pre-determined amount of time (known as the "options expiration date").

So why would you do this?

Simply put, because you have three different ways to make money:

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