option writes (selling covered calls)

(graph from 888options.com)

Looking for a predictable pattern of income from the stock portfolio you are holding?

A covered call is simply selling an option to someone to buy a stock you own at a certain price on a given day. Writing covered calls involves selling call options against your stock holdings. By doing so, investors can gain consistent monthly income from their stock portfolios without selling the stocks regardless of market direction. The covered call technique has nothing do with the risky practice of speculating or trading the markets with options - in fact, it is the complete opposite. Covered call writing is often considered “buying a stock with insurance” and by limiting the amount of uncertainty and investor lowers his or her risk of holding a particular stock. Besides earning income with out selling shares, if you had a stock in your portfolio that you wouldn't mind selling for a certain price, you could then write a call against it. By writing such a call, you would receive the amount of an option premium from the buyer of your option contract plus the predetermined strike price of the stock should it reach the strike price.

The covered call is a strategy in which an investor writes a call option contract while at the same time owning an equivalent number of shares of the underlying stock. If this stock is purchased simultaneously with writing the call contract, the strategy is commonly referred to as a "buy-write." If the shares are already held from a previous purchase, it is commonly referred to an "overwrite." In either case, the stock is generally held in the same brokerage account from which the investor writes the call, and fully collateralizes, or "covers," the obligation conveyed by writing a call option contract. This strategy is the most basic and most widely used strategy combining the flexibility of listed options with stock ownership. (888options.com)

Though the covered call can be utilized in any market condition, it is most often employed when the investor, while bullish on the underlying stock, feels that its market value will experience little range over the lifetime of the call contract. The investor desires to either generate additional income (over dividends) from shares of the underlying stock, and/or provide a limited amount of protection against a decline in underlying stock value. (888options.com)

While this strategy can offer limited protection from a decline in price of the underlying stock and limited profit participation with an increase in stock price, it generates income because the investor keeps the premium received from writing the call. At the same time, the investor can appreciate all benefits of underlying stock ownership, such as dividends and voting rights, unless he is assigned an exercise notice on the written call and is obligated to sell his shares. The covered call is widely regarded as a conservative strategy because it decreases the risk of stock ownership. (888options.com)