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Breaking down this strategy in a real life example, I bought 500 shares of Google at $108, which cost me about $54,000.
I look at this purchase as if I bought a rental income property for $54,000 in a very nice neighborhood. A house in a nice neighborhood isn’t going to go to $0 – a stock in a good company isn’t either.
For this, I can set the call price at $113. I already own the stock at $108, and this allows someone to buy it from me at $113. In order to do so, they need to pay $1.33 per share up front, so I earn $665 right away with all 500 of my shares ($1.33 x 500).
At the end of the week, if the stock isn’t at $113, I get to keep the $665 and my 500 shares of Google. If the stock is above $113, the person buying gets to pay the $113 price, and I get to keep the $665 they already paid up front.
Ideally, I don’t want the stock to hit the $113 price. I want to keep what I own and be able to do it again the following week.
If I look at that weekly income I can generate on a monthly basis, I would be able to earn an additional $2,660 each month.
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Image and article originally from thebrownreport.com. Read the original article here.