21st Century Academy

Renting Shares Made Easy Part 4

In our last few posts, we have looked at the great and simple Covered Call Strategy. Today we will continue the series, and look at what you would say to your Stock Broker when you go to place a trade.

Stock Broker Terminology

• Renting Shares - Covered Call
• Strike or Exercise Price - The price you are willing to sell the share
• Monthly Income - Premium
• Sell Insurance - Sell a Put

So you have selected the Shares that you own that you want to do a Covered Call on. Let’s say at the moment, your XYZ stock are trading at $23.40. You would be happy to rent them out for the rest of the month (four weeks) for a Strike Price of $25.00. You own 1000 shares, so you can do one Call Contract.

Now you can call your Stock Broker, and after quoting your account number the conversation might go something like this:

“I would like to sell one covered call on XYZ to expire at the end of this month, at a Strike Price of $25.00. What sort of premium do you think you could get me?” The Broker will refer to their computer for a moment and may come back and say, “At the moment I can get you 65c, would you like me to go ahead with the order?”. Before you rang your Broker, you would have had a fair idea of what premium you could get by checking some online data, or even a newspaper. If you are happy with the premium that is offered, you can ask them to fill the order. If you are not happy, or are a little confused, say to them that you will call them back.

Once you have decided on a premium that you are happy with, repeat the order back to your Broker, and then they will repeat the order back to you. Only then, should you confirm the Broker to fill the Trade for you.

With that out of the way, the premium for selling the Covered Call will be in your CMA Account the following day.

Written by Clint Maher - 21st Century Academy
Complete Wealth Education P/L © 2008