How to Write Call Options
When you write a call option, it is an agreement between two people, a buyer and a seller. A call option gives the buyer the right to "call" up an option to buy a set amount of stocks at a certain price. The buyer pays a fee (called a premium) for this right. The seller sells the amount of stock to the buyer for the price agreed upon in the option, no matter what the actual price is on the stock market. This is a strategy that works best with stocks that show little movement in price.
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Instructions
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Research your stock portfolio and select the stock or stocks that have not moved up or down in price much within the last few months.
Select an online brokerage that allows you to write call options on the stocks you are interested in. Register with that brokerage.
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Count your shares in your stock. It usually takes at least 100 shares to write an option. Decide what strike price you want to write your calls at.
You want to keep your stock while also getting some money for the call you have written. For that, you do not want the price of stock to rise above your call option strike price.
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Decide on the date when the call option ends. You make more money the longer duration you write the call option for.
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Get your call option into the stock market. At best, you make some money and the option contract ends. You can always close your option if the the stock price rises faster than you first anticipated with what is known as a "buy to close order." Or, if the stock rises to the target price, you have to sell the stocks at the agreed-upon price in the call option.
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Tips & Warnings
Use a reputable online broker, preferring one that has knowledge about writing call options.
This strategy is best for stocks that do have radical swings in price.
References
- Photo Credit stock exchange image by Christopher Walker from Fotolia.com
