Thursday, November 14th, 2019

Retirement Options Earnings

 

Stock trading commonly ceases upon retirement. Retirees commonly buy blue chip dividend stocks and collect their quarterly earnings. However, there is a place for options trading in retirement. Covered calls are an excellent way to gain retirement options earnings.

A covered call option is an options contract sold by someone who owns the underlying stock, commodity, or future. Owning stock provides a cover for selling a call on a stock. If stock prices go up sufficiently buyers of call options will execute call options contracts. By owning the stock already, sellers of call options need not lose money buying stock at the new, spot price. They will receive the strike price, the contract price, whatever the new price of underlying stocks, commodities, Forex contracts, or futures. The writer of the option always receives the premium, the price of the option.

This route to retirement options earnings works best when you know your stock very well and have a good sense of the channel in which it trades. The ideal situation is when you sell a call contract on your stock. It does not go up in price. And you receive the premium and keep the stock. Then you wait for the next opportunity to gain retirement options earnings with a covered call strategy.

A Safe Bet

Let us assume again that you are retired and not interested in excessive risk. However, you have years of experience in trading stocks and options on stocks. When the market is very volatile you see a chance for a profit but realize that with the current volatility there is as much of a chance of losing money and gaining any by purchasing stocks. In this case a long straddle options strategy is your route to retirement options earnings.

A long straddle is buying both a call and a put on the same stock with the same expiration date. In a long straddle options strategy the worst a trader can do is lose the cost the premiums paid for the call and the put if the stock does not change price. However, this options trading strategy has potentially unlimited potential if the stock price changes significantly.

This is good route to retirement options earnings as the risk is limited the price of the put and call contracts. And the strategy takes advantage of the inherent leverage in options trading as it can be very lucrative in a volatile market.

Staking Out a Position on the Cheap

Our lost suggestion for retirement option earnings is the common call contract.

The purchaser of a call contract pays a premium for the right to purchase a stock at a set price, called the strike price, no matter how high that stock might rise. He can do this any time during the contract period if he is trading American style options but only at the end of the contract period if he is trading a European style option. The buyer of the option contract only makes the purchase if the price has gone up making the transaction profitable. An alternative is to simply make to opposite trade to exit the contract with a profit and not bother with purchasing the stock.

The value of this approach to gain retirement options earnings is that with a properly chosen stock option the price can be very low and the potential earns very high.

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