Quote:
Originally Posted by Delphinus
20% yield, wouldn't that be nice.  Beats the -25% that seems to be more standard these days!!! I'll settle for a 2% yield nowadays! Heck, 0% would be better!! For crying out loud.  |
Here's an example:
Say you bought 100 shares of company ABC for $14. You could then write a covered call option, a month out, with a strike price of $15, and receive a premium of .70 per share.
A few things can happen.
At strike date:
You get assigned on or before, and make $1 per share, plus the .70/share option premium, 1.70, on $14, in a month. Annualized return: 145%
You don't get assigned, meaning you keep the premium and still own the shares. $.70 per share on $14 and still own the shares. Annualized return: 60%
Share price goes down to $12, you can buy back the option you wrote for $.10/share, you still own the stock, and have made $.60/share. Annualized return: 51%.
If it is a company you like then it should go up eventually.
Disclaimer: Options are not for the weak at heart. This is not a recommendation, just an example of what could happen.