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How to boost your stock returns while lowering your risk by
Tony Reed An options strategy called Covered Call Writing
is a conservative strategy designed to reduce risk and increase.
income when investing in stocks. Briefly stated, stock options
are contracts in which you buy or sell the right to buy or
sell. Although there are eight types of options contracts,
we're interested here in low-risk "Covered Call Writing."
Here's how it works: Say it's August and you buy 300 shares
of XYZ stock at the price of $48 per share. XYZ pays a quarterly
dividend of 50 cents per share. Therefore, if the price never
moves, you'll earn 4.2% per year.
At the same time, you would participate in Covered Call Writing.
To do so, you, you would "write three January 50 Calls." This
means you are selling ("writing") the right for someone else
to buy the stock from you (they "call" it away) between now
and the third Friday of
January at the specified price of $50. (All contracts expire
the third Friday of the month.) Each contract represents 100
shares, hence three contracts. The buyers pay you a fee (called
a "premium") of $3.5 per share, or $1,050. (The premium is
based on the amount of time until.
About the Author Tony Reed is the author of " How to boost
your stock returns while lowering your risk", please visit
his website Mutual Funds & Stock Trading for more information
http://www.funinusa.com/
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