How Covered Calls Work

Editor's note: The following article was written by Kevin Simpson, president and chief compliance officer of Capital Wealth Planning, LCC in Naples, Fla. He has been a licensed financial consultant since 1992. He can be reached at [e-mail]. His company's Website is www.capitalwealthplanning.com.

In these turbulent times finances are a constant worry, even for those who have plenty.

The affluent often make the same mistakes as everybody else when it comes to money management. They don't create a plan and stick to it. People have a tendency to chase fads or hot tips. There are select firms throughout the country that specialize in a protective technique that can dramatically reduce investment risk, while creating monthly cash flow and portfolio upside.

As 2008 has proven, the old adage of "buy and hold" has less relevance in this type of market. Over 50% of all trading activity is being executed by institutional investors. Market volatility is higher than ever before.

This massive short-term trading has changed the playing field substantially as the practice has evolved over the past 20 years. This means that the traditional thought process of buying good companies and holding them for profit has become more than challenging that ever before.

Shareholders of large companies have seen little in the way of growth -- in some cases to a staggering degree. The share price of General Electric(GE Quote) is basically the same as it was 10 years ago. General Motors share price is basically the same as it was 50 years ago. What is the individual investor to do?

Successful money managers believe the very purpose of any asset is to create income. They argue that stock and bond portfolios have received preferential treatment as an asset class for far too long. These traders demand that stocks and stock funds produce substantial revenue on a consistent basis. Using a safe financial strategy, a few specialized firms take the unusual position of performing this revenue-generating task monthly. Traditional firms do not take the time, energy or effort to create this income, especially on a monthly basis.