When Investing for Wealth Creation, there are two major areas we commonly look to in order to achieve Capital Growth.

The average person feels more secure when Real Estate Investing even though the Stock Market allows you to begin investing with a lot less money.

Maybe this is because Real Estate Investing offers the major advantage of income in the form of rent you receive from your tenant.

I use the term ‘rent' because most everyone understands this concept when talking about real estate. You buy a house and rent it out to a tenant who pays you money in the way of rent for the term of the lease.

You can actually do EXACTLY the same thing with shares you own.

You can rent out your shares to someone at an agreed price (your rent) for an agreed period of time (the lease) to receive an income.

In the case of renting shares the agreed rent is called the Strike Price, the rent you receive is called the Premium, and the term of the lease is the time leading up till the Expiry date.

What is a Stock Option?

Call Options are contracts that relate to a particular stock.

The person who buys a Call Option has the right (but not the obligation) to buy the underlying shares at any time up until and including the expiry date of the option contract.

A Call Option increases in value as the stock price increases.

An option contract involves two parties:

The person who sells the option is called the Writer.

The person who buys the option is called the Taker.

Options Traders are generally Takers, meaning they buy Stock Options with the intention of selling them later for a profit.

When using the Covered Call strategy we are not trading options, we are selling, or writing them to make money as income over shares we own. If we had to sell our shares to the option taker, then we would be covered, hence the name ‘Covered' Call.

Something to consider with this strategy is that the taker is not obligated to buy the shares, but as the writer, we ARE obligated to sell our shares should the option contract be exercised.

The benefit for the writer though, is that whether the taker decides to exercise their right to buy our shares or not, the premium we are initially paid as rent is ours to keep.

And if we do have to sell our shares to the taker, it means they would have gone up in value, so not only do we get to keep the premium as income, but the sale of our shares converts to cash, earning us capital growth as well.

If we owned some XYZ shares that we paid $ 12.00 for and they are currently trading at $ 12.30, then we could write some Covered Calls over them.

We could sell a Call Option with one month until expiry with a strike price of $12.50 and for this let's say the premium received is 50c.

Remember we get to keep that 50c per share regardless of what happens.

Now as long as the share price stays below $ 12.50 then the option will expire worthless in one month's time and we get to keep our shares. So we would make 50c profit as income and still own the shares to write another Covered Call Option for next month.

But if the share price was above $ 12.50 in one month's time then we would have to sell our shares to the option holder.

So we would have sold our shares but realised a profit of $ 1.00. And if we wanted to we could just buy the shares back again ready to do another Covered Call.

How to Make Money while you sleep WITHOUT the possibility of a tenant trashing your house or getting behind in the rent.