Monthly Archives: July 2011

Why sell an option?

Options can be sold for several reasons. A put option can be sold to target a price to enter a stock. A call option can be sold to target a price to sell a stock. Say you own ABC stock at $25 per share and are willing to sell it for $30. You may be able to sell a $30 strike call option for $1. If ABC is below $30 at the expiration date, you keep the stock and the premium received for the option. If ABC is above $30 you have committed to selling it for $30 plus you retain the $1 option premium so your total price received is $31. Sell calls to produce income can be a very good strategy. For example, say ABC stays in a range between $25 and $30 for an extended period, you can continue to sell the $30 option and collect income each and every month.