How To Make Extra Profits From Your Stocks
Let’s examine a typical stock investment and I’ll show you how to make extra profits from your stock.
First off, every investor should have an exit strategy BEFORE they buy. This means you have a target price in mind that you will sell at.
In my example, I’ll use Walmart as an example. At the time of this writing, Walmart (WMT) is currently trading at $50. If you look up WMT on Yahoo Finance you will see they have set a one year target price of $60.
OK, so you plan to buy WMT at $50 and sell at $60. A typical investor after buying WMT may set a Limit Order with their broker to sell WMT should it hit $60. Or, they may monitor the stock and sell manually at $60. Both of these methods are OK if you want a $10 profit, but I must warn you, you are leaving money on the table.
You can take that same trade (buy at $50 and sell at $60) and get $12 per share profit instead of $10. That’s an additional 20% profit! Once I explain this you will probably never sell your stock the traditional way anymore.
Make Extra Profits From Your Stocks
To make extra profits from your stock, you’ll need to be able to trade stock options. Let’s say you are buying 100 shares of WMT at $50 per share. After you buy, go and sell a Call option on your 100 shares. If you feel the stock will hit $60 in one year then use those figures for determining the Call option to sell.
Let’s see how this works. WMT has an option that expires in one year with a strike price of $60. It sells for $2.20 a share. What this means is that there are investors out there who are are willing to pay you $2.20 per share to buy WMT from you at $60 (the price you wanted to sell at anyway).
If WMT hits $60 or more and the other investors decides he wants your shares now for the $60, then your broker will transfer your shares to the other investor and give you $60 per share, just as if you had placed a SELL order. If the stock never does hit $60, you get to keep the suckers (err.. the other investors) $2.20 per share and the option expires worthless. You can then turn around and sell the option again, pocketing another $2.20 per share.
It’s not that hard to implement and it’s a great way to make extra profits from your stock.