Investor Business Daily: Three Ways To Generate Retirement Income Using Options

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(Investor Business Daily) By: Adam Shell

Income is the lifeblood of retirees who no longer earn a paycheck. But there’s a way to generate more income on a nest egg: stock options.

Finding new sources of income is especially important with inflation surging, interest rates still low despite rate hikes from the Federal Reserve, and stocks hitting a rocky patch. Three conservative income-producing stock options strategies work for retirement, says Randy Frederick, managing director of trading and derivatives at Charles Schwab. These are “not high risk and not about speculation,” he said.

Stock Options In Retirement: Consider Covered Calls

The common covered call options strategy lets you generate income and capture some upside in a stock. First, the basics. Calls give buyers the right to buy a stock at a set price and time. Covered calls refer to selling calls on stocks you own. Each option contract equals 100 shares.

Here’s how covered calls work. Say you own 100 shares of Apple (AAPL) at $155 but don’t think the stock will advance much in the short term due to Fed rate hikes or other headwinds. You can sell an Apple covered call that expires in a month at a strike price of 165 (the price you agree to sell at) for $3.20.

How Covered Calls Work For Retirement

You’ll get to immediately pocket the $320 premium from selling the option (100 shares x $3.20). “It’s yours no matter what,” says Steven Sears, president, and chief operating officer at Options Solutions, adding that the premium is akin to collecting rent. You’ll also profit from any price appreciation up to the $165 strike price.

“A covered call gives you the ability to make money on a stock position when the stock is not going anywhere,” said Frederick. He says this strategy is doable in an IRA or taxable account

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