Ross Stores, Inc. (ROST): Discount Retailer Offering Income Traders a Chance to Make 24% a Year

Ross Stores, Inc. (NASDAQ:ROST) Covered Call Strategy

For our covered call trade today, we’re going to buy Ross Stores, Inc. (NASDAQ:ROST) at the current price near $65.75. You’ll want to buy this stock in 100-share lots so that we can sell calls against the position.

Next, we want to sell the August $65 calls, which are currently trading near $2.60. Remember, we sell one call contract for every 100 shares of stock. The net cost for this position should be $63.15 (the $65.75 stock price less the $2.60 we receive for selling the calls).

Once we sell the August $65 calls, we now have an obligation to sell the stock at $65 when the calls expire, provided the stock is still trading above $65. This means that we would realize a gain of $1.85 from our net cost of $63.15.

The $1.85 gain represents a 2.93% profit over a 45-day period. This is definitely an attractive return considering the fact that if you made a similar trade every 45 days for a year, you would realize a 24% annual gain.

As we head into the second half of 2013, the stock market is looking more vulnerable to a decline. It is important that you develop a strategy to protect your capital from falling stock prices. Using a covered call approach can be a great way to keep your capital growing while protecting yourself from some of the market’s volatility.

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This article was originally written by Zachary Scheidt and posted on ProfitableTrading.