We were discussing on how to get steady income from stocks which one is owning for long-term and do not plan to sell anytime soon. Basically lot of us own stocks through ESPP or boughts stocks which we are not planning to sell due to company's long-term prospects. e.g. I have bought some EBAY when in was in mid thirties and not plan to sell anytime soon - one because it is in mid-20's and other reason is that I believe it will go back to low 40's in 18 month. However just holding the stock is not doing any good to my return.
Basically here is how it works in layman's term:
If you have 100 shares of of a stock say EBAY (which is selling at $ 27.15). If you are willing to sell the stock in one month if it goes to say 30 (about 10 % return in one month). Just sell a covered call option for Sept 30 which would net you about $ 30 before commission (about $ 21 after commission). If stock goes about 30, you may have to sell stock at 30 giving you 10 % return in one month. If stock stays below $ 30 before 3rd Saturday on Sept, you keep the change of $ 21 giving you about 1% return on your investment of $ 2700 (for 100 shares). You keep on doing this every month and collecting about 1 % every month effectively giving you nearly 10% return per year - much better than treasury:-)
To reduce trading charges, one can repeat same strategy every two months. So what's the downside (there is no free lunch!) ? If stock moves up substantially above $ 30 due to any event, you would miss out on upside potential.
In general, I found this strategy reasonable for all long-term holdings and I am planning to try it out on couple of stocks.
Now turning to some events:
Last week we went for camping to Napa State Park - it was fun camping. Kids enjoyed a lot playing in small river stream behind our campsite and also playing water balloons. We visited few new wineries nearby - St Joseph, Rutherford Hill, Peju and so on. It was fun, relaxing weekend.
This is last weekend before my second year of MBA starts - it was good summer break and I am definately all ready for going back to School !
Basically here is how it works in layman's term:
If you have 100 shares of of a stock say EBAY (which is selling at $ 27.15). If you are willing to sell the stock in one month if it goes to say 30 (about 10 % return in one month). Just sell a covered call option for Sept 30 which would net you about $ 30 before commission (about $ 21 after commission). If stock goes about 30, you may have to sell stock at 30 giving you 10 % return in one month. If stock stays below $ 30 before 3rd Saturday on Sept, you keep the change of $ 21 giving you about 1% return on your investment of $ 2700 (for 100 shares). You keep on doing this every month and collecting about 1 % every month effectively giving you nearly 10% return per year - much better than treasury:-)
To reduce trading charges, one can repeat same strategy every two months. So what's the downside (there is no free lunch!) ? If stock moves up substantially above $ 30 due to any event, you would miss out on upside potential.
In general, I found this strategy reasonable for all long-term holdings and I am planning to try it out on couple of stocks.
Now turning to some events:
Last week we went for camping to Napa State Park - it was fun camping. Kids enjoyed a lot playing in small river stream behind our campsite and also playing water balloons. We visited few new wineries nearby - St Joseph, Rutherford Hill, Peju and so on. It was fun, relaxing weekend.
This is last weekend before my second year of MBA starts - it was good summer break and I am definately all ready for going back to School !
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