For most retirees, a consistent income is what they aspire for. You probably won’t have a source of income after your retirement. You have to rely on your savings to keep feeding you and cover expenses of your healthcare and your family members. However, just the savings are not enough if you want to maintain a good lifestyle.
You might be able to feed yourself, but healthcare and other things such as travelling can be very expensive. To be able to live your life properly after you are freed from the responsibilities of a job, you have to work smart and increase your savings.
Putting $10 extra at a side is not going to be enough. You need to safely invest your money somewhere, so that it’s lost in a loss and brings you more return. Some fix all their money in a bank account for which they get an annual interest.
However, the interest and profit is so low that most people don’t opt for it. That said, it’s also the safest way to keep your money safe from inflation.
You need something that can bring a higher profit margin and not just save you from inflation. If you get higher return, it also means there would be a higher risk.
This is one reason why some of them invest in stock markets to supplement their retirement income. For some, it might work, and it might also fail for some. This is where using options for income comes in.
What Are Options?
Options are trading contracts that give an investor the right but not obligation to buy or sell stocks or assets at a certain price within a specific date. The right to buy in options trading refers to a “Call,” while the right to sell is termed as a “Put.”
How Does It Work?
Although options might be similar to futures, in options, you’re not obligated to make a trade if you don’t want to.
With the sellers obligated to let the buyers of a stock or security exercise the buy option, the buyer ends up paying a premium for the privilege of purchasing the stock or security at a predetermined date price and before a certain date.
Options enable investors to capitalize on a possible rise in stock prices.
For example, suppose your options contract allows you to purchase diamonds for $10,000 next month. Then it happens that the price of diamonds rises to $15,000, you’re allowed to exercise your initial buy option of $10,000, which is $5,000 lesser than the current market price.
If, however, the price of diamonds dips to $5,000, you’re not obligated to purchase it at $10,000. Although as a result of not trading at that particular month for the given market price, you might end up losing the premium you initially paid for this trading option.
How To Safely Do Options For A Profit
There are various options strategies that you can use to minimize your trading risks while also attaining a profit. They include;
1. Using a straddle
A straddle is a strategy that involves purchasing both a put and a call. A straddle eliminates any investor’s dilemma of calling what direction a certain company’s stock is headed.
Suppose you know a certain company is headed for a big move, and you don’t know which; you purchase both calls and puts and have them on a straddle. One of either will lose, but the one that bears profit will be valuable enough to cover the side’s losses.
2. Covered call writing
This strategy involves selling the calls that you already own. Selling a covered call entails purchasing at least 100 shares of a given company and then looking for a suitable call option for that stock and selling them.
According to the experts at money morning, when you sell a call option, you collect the premium or cost of that option immediately. No matter what happens next, the premium is yours to keep.
Conclusion
Options trading might appear very risky for some retirees, but that doesn’t have to be the case. With the abundance of plans meant to lower your risk for an even safer trade, options trading should be one of your top considerations.
It is recommended that you educate yourself before making an investment. Knowledge is not something that will ever go to waste. You can later decide if you want to continue with Options or not once you have explored the field.
Read Also:
- Why You Need A Retirement Plan A, B, And C
- 6 Things To Do, To Improve Your Retirement Planning
- When Retirement Savings Just Aren’t Enough
Author: Jessica Davidson
