Online Investors’ Ten Most Common Questions
Can you use options to boost your returns?
Options, which are contracts that give owners the right to buy or sell stocks by a certain time in the future, can be used aggressively or conservatively. Options can be used by speculators to place giant bets on stocks with very little up-front money. However, if used properly, options can add some extra return to your portfolio without necessarily increasing your risk too much.
Selling covered calls is a great example of how you can boost your returns without significantly increasing your risk. When you sell a call for a stock that you already own, it’s a covered call. When you sell a covered call, you collect a fee, or premium, from the buyer of the call.