Covered Call on SLV ETF

Today I will use a covered call strategy on the Silver ETF (Exchange Traded Fund) weekly options. The trade will be conducted in a Virtual account.  I am going to use this as an "Educational Example". I will document the results and create a an E-book/Report called How to Treat Stocks Like Rental Property.


Let's take it step by step.


Step 1.
Log in to your Virtual account, and choose the stock that you would like to use the covered call strategy on. In this case, the stock will be the Silver EFT (Ticker symbol: SLV). For a better view of the pictures below, just click on them.

Step 2.
Buy 100 shares of SLV and Sell 1 contract. By purchasing 100 shares of the stock, you now have the ability to rent the stock out. When you sell the contract or option it is like the buyer of a property renting out the property.

Step 3.
Collect the premium/rental and wait for 1 week. One of two scenarios will occur. Scenario A: the stock will be above the price you rented the stock out at, and you will be paid the price of the stock that you rented the stock out at plus the premium/rental (AKA->being assigned or called away).  Or, Scenario B: The stock will be below the price you rented the stock out at. If scenario B occur you will be able to keep the stock and keep the premium/rental (AKA->being unassigned or uncalled).  


If you want to see an example please look at the article on Covered Calls.

Review

In this Educational example, I purchased 100 shares of SLV at 35.86 per share plus a 10 dollar commission for a total of 3585.95. Next I rented out a 1 week contract for some to purchase this stock from me at 36 dollars. I received 68 dollars minus a commission of 14.98 for a rental income of 53.02.

If Scenario A occurs, I will receive 3600 dollars in my account and keep the 53.02 dollars in my account in 1 week. If Scenario B occurs, I will keep the stock, the rental, and re-rent the stock out the following week. What's going to happen?  Let's follow the trade and check for the results in 1 week (06-13-11)

Virtual Trading Account- An Investment Lab

Today I opened up a Virtual Account at OptionsXpress. They start you off with virtual account balance of 25,000 dollars. I recommend opening a Virtual Account because you can learn the basics of trading and investing without risking your real money. It's A great Training Ground or Stock Investing lab if you will.


Starting next week, I will start using the strategy of covered calls on the Silver ETF (ticker symbol: SLV) I am excited about doing the covered calls on the SLV because it will provide an opportunity to earn weekly income through the weekly options. If you do not know what a covered call is please read What are Covered Call. While I am building up the balance in my actual account, I will practice my theories in the virtual account.

Robert Kiyosaki has a board game called Cashflow 101. He says the best way to learn a skill if you can not actually do it is to simulate or practice it through games. We learn by hearing, seeing, and/or doing (or Auditory, Visual, and Kinesthetic learning) Practicing in a Virtual account provides all three types of learning in regard to investing for income.


If you have any questions or comments please post them in the comment box below.


That's all for now. Have a Great Day. Let's eradicate poverty and build wealth through financial education.