With a covered Call strategy you have a way of generating extra income from a stock you are happy to own.

Rather than just waiting for Company dividends and the stock price to rise to realize a profit you could also consider writing calls against the stock you own.

In Australia you trade Options per Contract, which is generally 1000 shares. So you will need to be in control of that number of stock or multiples of it for you to do this strategy. You would also only do this strategy if it formed part of your Trading Plan and it met the criteria for which you to Trade.

The basis of the strategy is that you sell a Call against the Stock you own for which you will receive a premium. This premium is income you would not have had if you just stayed with your Buy and Hold and waited for dividends or price rises. The risk is that you may have to sell your Stock at a pre-determined price and you could miss some potential upside. So if you say own a $25.00 stock and you sell a $26.00 Option against it you may have to sell the stock for that price. You still get to keep the premium you earned for selling the Option; you also receive the price for you stock at which you sold the Option.

You can always buy the Stock back again straight away if you are exercised to ensure you get any upside. You can also always do what is referred to as roll the Option. Where you buy back the Option you Sold and rewrite it for the following month at a higher strike price. If the Stock does not reach the strike price of the Option you sold then you keep the premium you were paid and you also keep the stock you own and you are free to write another Option against it the following month for more income.

Depending on the stock you own you would consider a 3-5 % return to be achievable per month using this strategy. Always remember there will be Brokerage fees to be taken into account when doing any sort of Trading. These fees should be always recorded and taken into any analysis done on transactions you do to give you a correct % earned. / Lost per trade.

They also need to be recorded, as they may be able to be claimed as an expense if you have to declare anything as earnings. Always seek Professional advice if you have any doubts or are unsure of what actions you should take. For more information on how to profit from the Share Market please visit http://protrades.info