Hi Fundas, the are called COVERED Calls, and your mate who says...

Hi Fundas,

the are called COVERED Calls, and your mate who says he is making about 8% per month is full of sh!t - HOWEVER, there is a good return (about 1.5 - 3% per month) x that by 12 - and you have a decent sized return.

It works like this:

You buy 1000 qbe shares at $24. You AGREE to sell your shares at the end of the month for $24.50 in return for someone paying you say 50c a share ($500).

At the end of the month is the price is above $24.50, you will get exercised - you pocket the 50c premium plus the 50c for your gain.

By the way - you get paid the 50c up front - in your account the next day.

If the share closes at 24.44 - you can do the same thing the next month.

People such as Jamie McIntyre say that you can get massive returns, however, pulling 15% per annum is a good aim. IF you can manage to do it then you are beating most people plus the professionals.

The downside is if the share falls, the premium paid for the share falls - and so the return on investment is low.

There are plenty of good books on covered calls - look in the Options section.

It works only in a flat to uptrending market - and you can also write NAKED puts in this type of market - although, you will want to know that you are happy to have the shares PUT to you.

Cheers
Brad