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Under normal circumstances when one buys a stock, the investor makes no profit in two out of three possible occurrences - (1) when the price of the stock goes down; (2) when the price of the stock remains the same.
The investor only profits if the stock increases in price.
However, selling options on stock owned or purchased makes it possible for the investor to ear handsome annual rates of return, frequently 40% or more!
Unlike regular stock purchases where a profit is possible only if the price of the stock increases, options make it possible to make a profit even if the stock remains at the purchase price or if it increases in price.
For more venturesome investors, annualized rates of return of 100% or more are possible under bearish market conditions by selling "naked options" (without actually buying or short selling any stock). In this instance the investor can realize a profit if the price of the stock remains the same or declines.
The author covers the risks as well as the rewards of trading in options.
Treatment of Dividends and Distributions
The Call Option Contract
Option Writing for the LockedIn Investor
Why Buyers Buy Calls
Federal Income Tax Consequences to the Seller and Buyer of a Call Option
Margin Accounts and Their Role in Selling Calls
Selling a Call against a Holding of Convertible Bonds
Chicago Board Options Exchange CBOE
An Option Account in Operation
Straddles Spreads Strips Straps Special Options and Conversions
Regulatory and Legal Matters
Stock Market Strategy and Call Options