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There are three methods to make money off of a stock that you already have. Combining all of them can be used to increase your return in the stock market.

So what are the 3 ways to make money?

1. Appreciation

Everyone knows about this one. If you buy a stock for $20 and sell it for $50 you made money. It is a relatively simple concept to understand and when there is a large bull market going on capital appreciation can become enormous.

So how can you find stocks that are likely to appreciate? Well the first thing you can look at is finding a company that is stable and will most likely not go bankrupt anytime soon. Second buying undervalued stocks that are likely to bounce back is probably the best way to profit from a long term investment.

Using factors such as the PE ratio and the Debt to Equity ratio will help you understand how fair a company is priced compared to its fundamentals.

2. Dividends

Dividends are also extremely popular. When you own a stock, that stock may pay out a percentage of their profits to all of their shareholders. It is a way for the company to reward all of their stock holders for investing in them.

Holding Stocks and ETFs that offer dividends is a great way to get a steady income stream and if you hold enough shares it may even substitute your income. Some dividend paying stocks can pay out over 10% of the price of the stock a year. That is a major advantage to holding an investment without a dividend.

3. Selling Covered Calls

Covered call writting is one strategy that not many people who hold stocks really utilize. In a sideways market this can be the best way to create money off of your stock. It does come with a little risk however.

When you sell a covered call you are giving someone else the right to buy your stock from you at a given strike price by a certain date in the future. But you get money upfront to take on the risk of having to sell your stock.

For example say you own stock ABC and it is trading at $51 you can decide to sell a covered call at the $55 strike price and get the premium from that option, say $5. You make $5 or almost a 10% profit from the trade, but if the stock goes up above $55 before the option expires you will have to sell your stock, missing the profit.

So if the stock shoots up to $60 or $70 you will miss the profit and have to sell it at $55. The missed opportunity can be worth it because selling covered calls adds up. If you sell a call one month and are not called out you can do it again the next month. It is one of the less used methods of generating income from your stock.

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