When you look at the stock market you can make money from your investment in 3 different ways. These are dividends, covered calls, and appreciation.
So, how does it work?
Appreciation is a simple concept. When you buy a stock and sell it for more later on you have made money off of appreciation. Most people who get into the stock market want to make big money from appreciation.
This is not the only way to make money from stocks.
You can also make money from stocks with high dividend paying stocks. With these stocks you get paid a portion of the earnings which a company makes. You can also get passive income from your investment with dividends.
By investing enough money you can actually live off of your investment.
Another way of making money from your stock would be covered calls. Selling calls is basically the process of selling someone else the right to buy your stock from you at a specific price on or before a specific date in the future.
So if you own stock XYZ and it is trading at $42 one thing you may want to do is to sell the $45 call option on it which expires in 1 month. You make $2 from this.
This gives you a 4.44% return on your investment in 1 month. The big problem here would be if the stock took off and was above $45 by the time the option expires. That is because you would have to sell it at $45 and potentially give up a large profit.
That is probably the reason why one of the stock trading tips that you hear on covered calls is to only sell covered calls at strike prices you don’t mind getting out of the position at.
Those are the 3 ways of making money on stocks. Combining them can potentially increase your returns in the long term. But using them wisely is a must.
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Tags: invest, stock market