Passive income is the most fun income because you get paid no matter what you\'re doing at the time -- traveling,

working your regular job, enjoying your friends, etc; it doesn\'t matter, you still receive the income. Earning

interest is an example of passive income. So is collecting dividends. What is there not to like? The good news for

investors who owns stocks or ETFs is that there is another kind of investment that is passive in nature and easy to

implement -- called covered calls.

Before we can discuss covered calls, let\'s talk about calls. A \"call option\" is a security that gives the buyer the right to purchase stock at a certain price before a certain date.

In exchange for this right the buyer pays \'premium\' (money) to the call option seller. If the buyer then decides he wants to exercise his right, the seller is obligated to sell the shares at the agreed upon price (but, keep in mind, the

seller gets to keep the premium).

Imagine Tom likes ABC Corp. He wants to purchase 100 shares of ABC Corp for $30 between today (March) and 3

months from now, but he doesn\'t have enough money to buy 100 shares. So instead, Tom buys one call option on ABC Corp stock with a strike price of 30 that expires in

June. Let\'s say ABC Corp is selling for $27 today... so Tom might pay $100 (for example) for the right to buy ABC Corp

at $30 between now and June. He does this because he thinks ABC Corp will rise above $30 between today and June. If ABC Corp rises to $40 then Tom can exercise his option right and force the seller of the call option to sell

him 100 shares of ABC Corp at the agreed upon strike price ($30/share). Tom will have to pay $3000 for these 100

shares, but he can then sell the shares in the open market for $4000, pocketing $1000 (minus the $100 in premium he paid to the seller when he bought the call option in

March). On the other hand, if ABC Corp finishes below $30 in March then Tom\'s option expires and he loses the $100

in premium he paid.

Generating monthly income by selling covered calls to other investors is not difficult. If you do it with stocks you

already own then the call options you are writing are \'covered\' (because if the options you sold are

exercised against you, you already have the shares you will need for delivery). If it happens that your stock is called away then you receive the strike price per share for your

stock. If you still want to own the stock then you can either buy back the option before it expires, or wait until it

is exercised and then use the proceeds to go buy more shares to replace the ones you lost during exercise.

Covered calls are the most common option-based strategy (at some online brokers over 80% of the option-enabled

accounts trade covered calls). Passive income flows to you (the option seller) as time passes and the options you sold decay in value. If you\'re not doing covered calls on stocks

you own then you\'re leaving money on the table. Why not have your stocks work for you? The only requirement is that you own 100 shares of a stock or ETF; after that the

rest is easy...

http://www.forextrader4u.com/