You’re going to like this. After reading this article, you will be able to make a premium on the stock you sell.
Normally, when you want to sell stock you own you either pick up the phone and call your broker or go online and enter the sale. Either way, it’s quick and easy and has a relatively inexpensive transaction costs. But with a little extra work you can go from paying a small fee to sell your stock to making thousands of extra dollars. Here’s how to do it.
Suppose you have 200 shares of IBM which you want to sell. At today’s price of $120 you would receive $24,000 less commissions. However, there is another way to sell that adds additional profits than what you would receive by selling the normal way.
Instead of doing it the normal way, you call upon your knowledge of stock options (if you have it) and decide to sell in-the-money calls. As each option contract is for 100 shares, you would sell 2 contracts. You decide to sell 2 $ 110 strike contracts, which currently have a premium of $12.50 per share. This premium is made of the $10 intrinsic value (the $10 above the strike price and $2.50 for the time value for the remaining days left before expiration of the contracts.
More than likely, some trader would like to pick up the options. To purchase the options you offer would cost the trader $2500, which would be cash in your pocket.
If the option is exercised and the stock is called away, you turn your stock over for the agreed price of $110 or for a total of $22,000. However, you made $2500 on the sale of the options, thus your net is $24,500. You made an extra $500 less commissions. If for some reason the investor who purchased your options doesn’t want to exercise his rights to your 200 shares by the time the options expire, you keep the $2500 and the stock. It’s win-win. Considering the time it takes to do the math and sell the options, the extra profit is well worth it.