More on options - Why they might actually be a good thing.

Hi,

Yet again, I'm writing about options. I truly believe that there are worth looking at further, since there seems to be good reasons to believe you could make good returns in this area.

Writing covered calls seems particularly promising. There are different approaches to this investing strategy.

- Writing In-the-money calls; This is where the share price is already above the strike price, so increases the chances of an option being exercised. It seems like a strange thing to do, but if you think about it, you buy stock at a price slightly higher than the strike price, then the premium, or fee is paid, which reduces what you effectively paid. The fact that the option is already in the money means that it's likely to be bought, and thus give you a chance to receive the maximum return for that option. You must note that this strategy reduces the potential on returns from the stock price moving, but clearly reduces the risk.

-Writing Out-of-the-money calls; This is where the share price is below the strike price. This strategy clearly gives potential for the different in price between when the stock was bought, and the strike price where it could be sold, to be maximised. The downside to this is predicting that that situation will occur.

-Writing On-the-money calls; This is where the share price is at (or very close to) the strike price. This sort of combines the two above strategies. You haven't got as great a potential as out-of-the-money calls for earning from stock price increase, but it's better than in-the-money calls. The risk for this strategy is less than out-of-the-money calls, but but slightly more than in-the-money calls. This could certainly be a good place to start with covered calls, to learn, then perhaps look into the other alternatives.