Options: The Next Level in Investing

From 1999 to the beginning of 2009, people have seen a hard time with their IRAs and other retirement accounts. If you were lucky like me, you lost in some years 3 to 5 percent but never gaining more than 17 percent in any given year. If you were like most people around the country, you lost at least 50 percent of your investments and can not afford to retire. If you followed my investment strategy from 2009 until now, you should be well on your way to recovery. In 2009, my rate of return was 45.39%. “Year to Date” for 2010 it is 14.10%.

If you recall, I suggested that you place part of your retirement money in Ford Motor Company Stock. My buy range was from $6.00 to $7.50 per share. I suggested that you let the stock double in price, $12.00 to $15.00 then sell half of your investment. That way you can take your initial investment out. At that point you would be “risk free” in this investment. For the remainder of your Ford Stock investment, all you have to do is check your stock for 10 to15 minutes every night to see if the trend of the stock is still up, the market is still on the up trend, the fundamentals of the company is still good, and if the trend for the auto industry is still generally on the up swing. If these fundamentals change then you know to sell the rest of your stock.

Now let’s take this investment strategy to the next level. Let’s say that you bought 200 shares of Ford Motor Stock at $6.00 per share (200 shares times $6 is $1,200). Following my investment strategy, you decide to sell 100 shares at $12 per share (100 shares time $12 is $12,000). You would be “risk free” after this transaction. Instead of selling the stock, how about “writing a call option” with a strike price of $13 per share at 11:20 AM on March 4, 2010. At that time, a March 10 Call with a Strike Price of $13 was asking 23 cents (1 Call times 100 shares times 23 cents is $23). The transaction may cost you $13 so you will only make $10. But $10 profit divided by $600 investment price is 1.67% and you still have the stock.

By writing or selling the option to someone will allow them to call away your stock at $13 per share until March 20, 2010 (Exploration Date). However, you locked in at least a selling price of $13 per share plus $10 for the option ( $13 times 100 shares plus $10 or $1,310). That is if someone exercises the right to call away your stock at $13. If your stock is not called by March 10, 2010, the option expires and you are free to write another option that will expire on the next expiration date that you take at the price that you set. You will collect more money for that “call.” Writing Covered Calls is a very conservative way to make a few more dollars on your investment. Your risk is that the company may go out of business or never recover from a price collapse. But remember, you have your original investment already!

We only looked at one conservative Stock Option Strategy for selling stocks that you already own. In-the-Money (ITM), Out-of-the-Money (OTM), and At-the-Money (ATM) Option Stategies can give you different amounts of cash based on market conditions and your investment commitment to the transaction. If you would like more information on options, go to this website http://www.optionsxpress.com/