Option Trading Tip - Covered Call Cashflow

Writing Covered Calls is a conservative strategy where you buy a stock that you would like to invest in and then write a call option against that stock. This is a cash generating strategy that not only offers downside protection that you otherwise wouldn't enjoy if you just bought the stock, but also gives you the ability to generate a consistent monthly income, for only minutes of your time. However as with all option trading strategies, there are pitfalls that you will need to avoid if you are to be consistently profitable. Here are a few tips that may help you write covered calls successfully. Always check the fundamentals of the underlying stock and make sure that you would be happy to own even if options didn't exist. A great resource for viewing fundamental 'ratings' for stocks is at http://www.stockcharts.com and pull up the chart for the QQQQ during the early part of 2003, you'll see this exact pattern. I successfully wrote covered calls on the QQQQ for about 4 months during this time before I allowed myself to be assigned and moved onto another opportunity. There you have it. Hopefully these tips help you on your way to consistent profits and monthly cashflow writing covered calls. Oh, it also goes without saying but I'll say it anyway, "Don't put all your eggs in one basket!" Happy option trading and investing! Add to document.write("Del.icio.us") | Yahoo! My Web Technorati: James Thomas is a successful private option trader and creator of option trading tips, including free video tutorials.