Here are the written instructions that accompany the short video that I prepared to show you how to place the trades.
It is a two-part process. The first step is to buy the stock, Once the stock has been purchased, then you sell the call which is “covered” by the stock that you have in your account.
In the video the stock that I use is SSRI, silver Standard Resources. It is a large, established silver mining company.
It closed on Monday, December 7, 2009 at $23.83. Typically, when I am looking to purchase a stock in order to write calls against, I will look at charts and place a limit order that would catch the low price of the recent trading range.
However, in this instance, December options expire in just 9 more trading days, so we don’t have much time. The options are losing their value quickly, so I would not be too aggressive in trying to scalp a low price on the stock.
Once you purchase the stock, then you are ready to sell the call or calls that are covered by the stock.
In the video I place an order to sell 1 December call with a strike price of $24 per share. That option expires in 9 trading days and is quoted at $0.90. Each option is for 100 shares, so you have to multiply the optiopn price times 100. In this instance you would receive $90 for that call.
The option symbol is izuly, and I place a market order because we are working on a very tight time frame.
As shown in the video, this works out to about 3.78% return for the 9 days, assuming the stock price remains the same.
Typically, when there is a full month and not just 9 days of time remaining, the returns will be in the range of 4% to 9% per month, without taking into account any stock price appreciation.
In 9 days when the option expires, we will again sell another call against the shares that we own. Right now, the January $24 calls are bid at $1.75.
It is important to sell calls every month, and to not lock yourself into a longer period of time. It is tempting to sell the January call instead of the December call.
Don’t do it!
You’ll make far more by selling every month, compared to selling 1 call that expires in several months.
You want the flexibility to adjust the strike price every month to get maximum gain based upon the underlying share price.
To repeat, you’ll make far more money by selling every month, compared to selling one option that expires in a longer period of time.
With that as a preface, here are the direct steps to take:
1. Log into your stock market account.
2. Click trade > stocks
3. Select “buy” “to open” 100 shares (or as many as you choose in multiples of 100) of SSRI stock.
4. Choose market price (or a price slightly below ask if you decide to place a limit order, but remember, you’ll need this order to get filled before you can place the option order.)
5. Review the order and click to place the trade.
6. Once the shares have been purchased, click trade > options
7. Click “sell” “to open”
8. Enter number of contracts, with 1 contract for each 100 shares of stock you own.
9. Enter 5-letter option symbol = izuly
10. Choose market order
11. Click review order
12. Click to place the trade.
13. That’s it, you’ve just sold the option and the money from the sale is in your account.
I will be having a webinar on Teudsday at noon eastern time to go over the steps and to answer any questions at all that are related to this strategy.
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