How to Sell Common Stock

Investors sell stock for any number of reasons, including for short trades, sell stock or to write options. How options are sold is largely a matter of cost, since execution is the same whether an online broker or a commission broker is used. Investors should always have a plan from the beginning of a trade to its completion to avoid hunches.

Instructions

1. Sell stock through the standard brokerage account. Call your broker and sell a stock. You will be paying full commission and have the monies sent directly to your account. Using this technique is expensive, and the sales experience of the broker may guide you into a trade you do not care to make.

2. Open an online brokerage and do the same trade online for a small fraction of the cost of using a full-service broker. Place conditional orders, stops, and perform any other action using a full-service broker. Use independent research provided for free through online brokers but also have an investment plan or strategy.

3. Sell stock because it hit a protective stop, a sell order placed after buying a stock. The price of the stop reflects the absolute level of loss that the investor is willing to absorb. Investors who use protective stops do not let small losses become large losses, and they also use exit stops or sale of stock once profit objectives are met. Such tests involve selling when a stock hits a predefined level.

4. Sell stock using a covered call. A covered call is a cash-producing strategy for stock you already own. The investor sells a call against the position and receives a premium. The call buyer has the right to buy a stock if it closes above an agreed upon price called the strike price. At the call's expiration date, the investor sells the stock if it is at or above the strike price. The premium is usually more than the cost of commissions. Risk comes from the varying price action during the period of the call.

5. Sell common stock when setting up a short sale. A short sale is the sale of stock in anticipation of a decline in the price of the stock. Investors must have already opened up a margin account, which allows them to borrow stock until the short sale is complete. When the stock price declines, the investor buys the stock, returns the borrowed stock, and profits from the difference between the price of the sale and where stock is covered.

Tips & Warnings

• Covered calls are a safe strategy for creating extra income in the account. The call writer keeps all dividends declared until the option is exercised.

• Shorting stock can lead to large losses unless protective stops are used.

Resources

• Further Explanation of a Covered Call Strategy