Investors are always looking for ways to create consistent income in their investment portfolios. One strategy that is gaining popularity is options trading. In this article, we’ll explore how an options strategy can be an excellent way to create consistent income in an investment portfolio.
What are Options?
Options are contracts that give the buyer the right, but not the obligation, to buy or sell an underlying asset at a specific price within a specific time period. Options are often used as a way to hedge against market volatility or to speculate on the direction of an asset’s price.
One of the advantages of options is that they can be used to generate income in a portfolio. There are two main ways to generate income from options: selling covered calls and selling cash-secured puts.
Selling Covered Calls
When an investor sells a covered call, they are selling the right for someone to buy an underlying asset at a specific price within a specific time period. The investor receives a premium for selling the call, and if the price of the asset does not exceed the strike price, the investor keeps the premium and the asset.
Selling covered calls can be an excellent way to create consistent income in a portfolio. Investors can use this strategy on assets they own, such as stocks or exchange-traded funds (ETFs). By selling covered calls, investors can generate income on assets they already own, which can help boost their overall returns.
Selling Cash-Secured Puts
Selling cash-secured puts is another options strategy that can generate consistent income in a portfolio. When an investor sells a put, they are selling the right for someone to sell an underlying asset at a specific price within a specific time period. If the price of the asset does not fall below the strike price, the investor keeps the premium and does not have to buy the asset.
This strategy can be used to generate income on assets that the investor wants to buy at a specific price. If the price of the asset does not fall below the strike price, the investor keeps the premium and does not have to buy the asset. If the price of the asset does fall below the strike price, the investor buys the asset at a lower price than they would have otherwise.
Conclusion
In conclusion, an options strategy can be an excellent way to create consistent income in an investment portfolio. By selling covered calls and selling cash-secured puts, investors can generate income on assets they already own or want to buy. If you’re interested in using an options strategy to generate income in your portfolio, consider working with a financial advisor like Harmer Wealth Management to get expert guidance and advice.