How Covered Calls Are Like Real Estate Investing

Covered calls have been used for many years, but until recently only the largest brokerage houses used covered calls and then only for select investors. In the past decade, with the advent of discount brokerages and on-line trading, covered calls became available to the small investor. This article describes how covered calls are similar to real estate investing.

One can think of the accumulation of a stock portfolio through time as the cultivation of a forest full of tress. If you think of these trees as fruit trees, then the fruit are the covered calls. If you don't use covered calls, you're leaving the fruit unpicked.

Traditional Street mentality encourages investors to plant trees throughout their working lives and rely on appreciating markets to grow the forest over the long term. Then, in retirement, they tell you to start cutting down the trees to provide retirement income. The hope is that the forest will have grown large enough over time to withstand the depletion and last as long as you do. In our experience, this growth is a rarity for the average American.

If you start looking at the trees as fruit bearing assets, the whole picture changes. You don't have to cut down trees. Not only do you not deplete your assets in retirement, you can continue to grow them.  You stock is the tree, your covered call is the fruit.

Another way of looking at stocks is to think of them as investor-owned real estate. This is how Compound Stock Earnings views stocks. You buy real estate to rent out to other people. You don't buy real estate and let it sit around for years, hoping the value of the property will go up enough so you can sell it. Yet, this is just what traditional stock brokers will tell you to do. Covered calls are the same as rental or lease income. You own the stock. You sell covered calls, which gives another person the right but not the obligation to buy this stock from you at a fixed price until a fixed date. The moment you sell the covered calls, the cash goes into your account. You can spend it or reinvest it.

Here's a quick example: you buy a stock for $20 and sell a covered call to a speculator for $1. That's an immediate 5% return. Most new covered calls expire within one month. If the stock is still at $20 one month later, the covered call expires. Now, you can sell more covered calls. Another 5%. And so on.

But what if the stock goes down, what then? That's where management comes in. You DON'T sell the stock for a loss. You use the techniques you learned from Compound Stock Earnings to continue to earn 3 - 6% per month.

Robert Kiyosaki, author of Rich Dad, Poor Dad, was so impressed by Compound Stock Earnings and their covered call real estate mentality, that he wrote the forward to Joseph Hooper's and Aaron Zalewski's book Covered Calls and LEAPS: A Wealth Option. In the forward, Mr. Kiyosaki wrote, "Brilliant book. Anyone who has read any of my work knows that I believe buying, holding and praying is not an optimal financial strategy. Joseph Hooper and Aaron Zaleswki have done an excellent job making a complex subject simple enough for someone like me to understand."

It's time to break old habits. Stop hoping and praying your stocks go up. Start using Compound Stock Earnings' covered call techniques and take control of your investing future. if you're using covered calls to harvest your stocks, you're leaving 3 - 6% per month on the table every month.