Everybody loves extra income.

And today I’ll show you a simple trick that can help turn some of the stocks in your portfolio into your own potential income generators.

It’s almost like collecting dividends from a stock that doesn’t even pay one.

And it’s all possible thanks to options.

That’s what this is all about: How we can use options to get better returns in the stock market.

One of the most popular options trades is selling covered call options to generate income.

But here’s the trick… You only want to use this strategy on stocks you are ready to sell.

You will be getting paid to agree to sell your stock at the strike price of the call option. There’s always the chance that the option will be exercised and called away from you.

Let’s walk through a quick example that applies today on a stock that most can find in their portfolio — Apple Inc. (Nasdaq: AAPL).

Collecting Extra Income From Apple

Before you log in to your account to sell a covered call, keep in mind you can only sell one contract for every 100 shares of a stock you own. So if you own 99 shares or less of Apple, you wouldn’t be able to sell a call option because it isn’t 100% covered.

Make sure you own at least 100 shares of the stock.

At time of writing, shares of Apple are currently trading around $116 a share.

If Apple stays below $123 between now and October 16, we get to keep that money.

It’s not bad for two weeks, but the real perk is seeing it add up over years.

Whenever you sell a covered call, there’s only two possible outcomes.

2 Ways to Get Paid

In both outcomes you’ll still get paid by simply keeping the income you collected from selling the covered call.

The first outcome is the stock climbing past your strike price and staying above it by October 16. That means your broker would close out 100 shares of the stock for every contract you sold at the strike price. Again, it doesn’t matter how high the stock goes. You exit the stock at the strike price, plus you keep the income you received.

The second outcome is that the stock stays below the strike price on October 16. That means you get to keep holding shares of the stock in your portfolio. Plus, you keep the income you collected for selling the covered call.

At this point, you can do whatever you want. But if you are looking for income, you could turn right back around and sell another set of covered calls.

You could sell the November covered call at the same strike price to keep adding more income to the stock and look to get paid to close it out.

This is what we mean when we say the income adds up. Imagine if it takes six months for Apple to climb above your strike price … that’s six months of selling covered calls on the stock and getting income each month. Then, when the stock finally reaches that strike price, you will be selling the stock for a gain and getting paid to do so.

It’s right up there with my top income strategies. Between selling put options from last week’s Weekly Options Corner and selling covered calls, you have the makings of one of the hottest income strategies in the market.

And selling covered calls is a very straightforward strategy that comes standard at most brokerages with level-one options trading — the most basic level.

You can start by selling put options on stocks you’d love to own. Remember, this allows you to get paid to possibly buy the stock. Eventually, once you end up having to own shares of a company, then you turn around and sell covered calls on the same stock to keep generating income.

At the end of the day, it’s all about making money.

And selling options is one of the easiest ways in the market to do it.

Now this is not to say it’s a simple strategy – trading options is trickier than your typical stock trade and they move faster too, so it’s important to stay on top of it. 

But as you seen, they offer a much greater potential for profits. 

Next week, I’ll lay out the details in my profit trigger and how this one big event sets us up for success.

Chad Shoop
Chad Shoop, CMT

Editor, Quick Hit Profits