When you buy a stock, do you have an exit strategy? Do you have a target price at which you will sell if the stock rises? Using options, you can receive money today for your willingness to sell your stock at a higher price. This potential income-generating options strategy is referred to as the covered call. You collect and keep the premium today, while you wait to see if you will sell your stock at the higher price. If the stock price remains unchanged, you keep your shares and the premium you received from selling the call.
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Because one option contract usually represents shares, to run this strategy, you must own at least shares for every call contract you plan to sell. First, choose a stock in your portfolio that has already performed well, and which you are willing to sell if the call option is assigned. Normally, the strike price you choose should be out-of-the-money. Next, pick an expiration date for the option contract. Consider days in the future as a starting point, but use your judgment.
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