Things You'll Need:
- An online broker
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Step 1
Buy a stock with good fundamentals.You can go to http://moneycentral.msn.com/ and go to "Top Rated Stocks." Look for stocks that have a rating of 9 or 10 and purchase at least 100 shares of a stock in order to write a call option against it.
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Step 2
Sell a call option. This is also known as writing an option. This does two things; it gives you income on a stock if it's not moving and also acts as a cushion in the event that a stock goes down in price.
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Step 3
If you purchase 100 shares of Intel for $20.00 and you pay $2,000 for this and you then sell an options contract with a strike price of $30.00 for $200 thus bringing your net cost to $1,800. So let's say that the stock moves from $20 to $22 by the time the option expires. You will have made the $200 from the stock plus the $200 from selling the option for a total of $400. If the stock fell from $20 to $18 you will break even because of the $200 you collected from the sale of the call option. If the stock goes from $20 to $35 you will make $1000 from the stock and $200 from the sale of the put. But at $30 your stock will be "Called" away from you and sold to the person who purchased the call. So you will only make money on the stock up to $30, which is the strike price of the option. Anything above that goes to the purchaser of the call option.
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Step 4
The beauty of this you is since options contracts expire you can do this every month and create an income stream from the stocks you own whether they are moving up, down, or going nowhere.
