How to Generate Income from Stocks

If you're looking for a way to potentially generate income, learn more about the covered calls in this 3 minute video provided by E*TRADE. What is a covered call? A covered call is a 2-part options strategy that combines a long security position and the sale of a call option which serves as a contract between a buyer and a seller. Watch to find out the potential risks and rewards of covered calls and share. A covered call writer foregoes participation in any increase in the stock price above the call exercise price and continues to bear the downside risk of stock ownership if the stock price decreases by more than the premium received. Important Note: Options involve risk and are not suitable for all investors. For more information, please read the Characteristics and Risks of Standardized Options at https://content.etrade.com/etrade/estation/pdf/charrisk.pdf before you begin trading options. Also, there are specific risks associated with covered call writing including the risk that the underlying stock could be sold at the exercise price when the current market value is greater than the exercise price the call writer will receive. Because of the importance of tax considerations to all options transactions, the investor considering options should consult his/her tax adviser as to how taxes affect the outcome of covered call writing. Commissions and other costs may be a significant factor. Options investors may lose the entire amount of their investment in a relatively short time.

Comments

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2. I'm confused on why the buyer would risk the stock going above 19$ because the premium he/she pays causes a major deficit to the potential reward. It seems that most likely he buyer will lose money buy making this trade.
3. Its basically Buy or Sell.
4. +E*TRADE 
   Nope, I'm still a bit confused about options. Especially the terminology at 1:24.
   
   Someone correct me if I am wrong in my understanding. The example below negates brokerage fees.
   
   1 call = 100 shares
   1 share = 1 "contract" or "obligated sell"
   
   Jack offers to sell his contracts for a $0.64 premium per share or $64.00 total per call.
   Jill buys 1 call option for $64, hoping the stock will go above the strike price so that she will be able to secure a better position in the market.
   Jill is probably hoping that the stock will gain at least $0.64 above the strike price so that she will break even with her "cost basis" if she exercises the call option.
   If stock hits the strike price ($19) and Jill exercises the option, Jack makes $100 on stock + an already secured $64. If the stock does not hit the strike price before expiration and/or Jill does not exercise the option, Jack holds his stock/position, he already made $64 upon selling his call option to Jill which is now terminated.
   
   Jack can now turn around and sell a new call for with a strike price of $20.
   
   How do E*Trade customers set the "price per contract" and/or how is this calculated? I understand that the Strike Price and the contract price can change based on the term of the call option.
5. I see how they are trying to be very clear and use animations and graphics...but this "Hands and iPad" metaphor is more confusing than helpful.  Animations are not there to "look interesting" or "hold your attention".  They are there to make things clearer.  This animation was mostly a distraction and not a clarification.
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8. so jack is still making money if the stock goes above 19$?
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