The stock market has not been extremely friendly to many people over the past decade. Individuals have seen the value of their stock portfolios cut in half, or more. It is a shame really. Some baby boomers I know have worked extremely hard over the past twenty-five or thirty years and are now faced with the prospect of having to continue working well into their sixties.
With this is mind, many people are looking for investment alternatives. Covered call strategies are one such alternative that may prove to be profitable and reduce risk at the same time.
Before we get into discussing advance investing strategies, such as covered call strategies, we need to discuss a few important stock market basics.
What is a Share of Stock?
A share of stock represents ownership in a company. When you own a share of stock you are literally entitled to a portion of that company’s annual earnings. Typically, these earnings will take the form of a dividend unless the company elects to reinvest their profits into the business, in which case you may not receive anything.
If you own enough of the company’s outstanding stock you may actually be able to influence the direction of the company. Unfortunately, for most public companies this would cost literally millions upon millions of dollars.
What is the Stock Market?
The US stock market is simply a public market where shares of stock are bought and sold based upon agreed upon prices that fluctuate based upon supply and demand. Typically the better a company is performing (financially) the more expensive the price of the stock becomes.
All stocks that are traded on public markets are assigned a stock symbol. You will never find two stocks that have the exact same symbol. In the United States, stock symbols consist of between one and five letters.
For example, INTC is the stock symbol for Intel (the computer chip maker) and KO is the symbol for Coca-Cola.
How are Shares of Stock Purchased?
In almost every circumstance you will need a stockbroker to buy or sell shares of stock. In our internet age stockbrokers no longer need to be human. Almost every brokerage firm offers computer stock trading where your orders are processed by a computer almost instantaneously. A few great discount stockbrokers include Scottrade and Think Or Swim (my personal favorites).
These online stockbrokers make it possible for the small, individual investor to begin implementing covered call strategies. Without them, it would be entirely too expensive to even attempt trading options.
Now that you know some of the stock market basics, it is time to begin learning the art of selling covered calls.