Sell Stock Options and Earn Rental Income from your Stocks

Can you really earn rental income from your stocks? Yes, you can when you sell stock options. This is an amazing stock market secret that many investors do not use to their advantage. The amazing thing is that it’s pretty easy to do and very reliable too.

When you earn extra income from your stocks, it really boosts your overall return on investment. Wouldn’t you like to increase your ROI and earn extra capital from your stock holdings? Of course you would, who wouldn’t?

Extra capital in your brokerage account means that you can increase you holdings and earn even more stock option income in the future. Or you could just withdraw it on a routine basis and use it for something fun and productive around the house – the choice is yours.

Criteria to Sell Stock Options for Rental Income

This may sound too good to be true, but the fact is that not every stock holding is suitable for earning stock option income. In fact, for some stocks, you would be quite foolish to do this. So let’s review the requirements to do this effectively.

The best stocks for this method are blue chippers. Ideally, this is best for someone who has a big stock holding of a Fortune 500 company. For example, this may be someone who simply holds the stock to earn dividends each quarter. The good news is that they could now have another way to earn money from their holdings.

The stocks of these large established corporations are very liquid which means hundreds of thousands of share are traded every day – perhaps even millions of shares are traded daily. This usually means they also have a very liquid stock option market too, which is necessary to sell stock options for rental income.

When it comes to stock options, there are two very important metrics you must be aware of – those are liquidity and volatility. When selling options, you want both of those metric to be high. If there is no liquidity, then you will have problems getting your order filled at a reasonable price. Just look at the spread between the bid and ask prices. If the spread is wide, then this means the market isn’t very liquid. When the spread is tight, then you won’t have any problems getting your orders filled.

How the Method Works

Okay, now let’s review how this method works. I am going to assume that you have a basic knowledge about stock options in terms of how they are priced and how to buy or sell them. As you should know, one option represents 100 shares of the underlying stock.

Therefore, if you are holding 550 shares of a blue chip stock, then this means that you can sell 5 options on the market. You may have heard that selling options has infinite risk, this is true if you are selling naked options. When sell naked options and they go into the money and get exercised against you, then you have to provide the stock yourself at the strike price of the option.

However, with this method, you are selling covered options. This means that you already have the stock to give if the options are exercised against you.

Here’s how to work this method.

1 – Check out the stock options that will expire within the next 30-45 days. Look at call options that are one strike price out of the money. See what you can sell those options for at the present time.

2 – Wait for a day when the markets rising high and the Dow Jones Industrial Average are trading high. Ideally, the Dow is gaining 100 or more points for the day. This condition increases the volatility of the stock option market, which is exactly what we want.

3 – Sell the call options that are one strike price out of the money. The money you receive goes into your account immediately and is yours to keep regardless of what happens.

4 – Our goal is to have those options expire worthless. The money we received is ours to keep and we get to repeat the process again for the next month’s options.

5 – Sometimes your options will get exercised against you which means you have to give them your stock for the strike price of the option. The good news is that your stock had to rise to reach that strike price and you earned even more money from the increased stock price.

Are there Risks with Selling Covered Call Options?

Yes, of course there are risks – we are talking about the stock market here. Nothing is every guaranteed with stocks or stock options.

However, these risks are controlled because of your ability to keep selling options and keeping income. Believe it or not, the best conditions for selling these options are a market that is either moving sideways or is slightly dropping. This allows you to go in and out of these options with the back and forth price movement associated with a sideways market. This is especially nice because the market spends most of its time moving sideways anyway.

Of course, the bad thing that occasionally happens is that you no longer have the stock because the options get exercised against you. At this point, if you want your stock back, then you can either buy it right back with the money you just received. Or you could wait for a day when the stock price dips and buy it at a cheaper price than you just sold it for. Either way, you are now ready to sell more stock options for income.

Conclusion

This method is earning income when you sell stock options is a bit more sophisticated than your typical transaction. But what you must understand about stock options is that the people who sell stock options earn profits far more than those who buy stock options. The odds are in your favor with this method.

The one word of advice is that you must make sure you understand the process here. If you are not familiar with stock options, you need to know that can be very dangerous for people who do not understand them. This is because they are a decaying asset – unlike stocks which will always have real value.

 

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