Option strategies covered

How and Why to Use a Covered Call Option Strategy

The Strategy Selling the call obligates you to sell stock you already own at strike price A if the option is assigned.

Covered call (long stock + short call)

Covered calls can also be used to achieve income on the stock above and beyond any dividends. The goal in that case is for the options to expire worthless.

Options Guy's Tips As a general rule of thumb, you may wish to consider running this strategy approximately days from expiration to take advantage of accelerating time decay as expiration approaches. Of course, this depends on the underlying stock and market conditions such as implied volatility.

option strategies covered

Beware of receiving too much time value. Parabol binary options for news in the marketplace that may affect the price of the stock. Remember, if something seems too good to be true, it usually is.

option strategies covered

Break-even at Expiration Current stock price minus the premium received for selling the call. The Sweet Spot The sweet spot for this option strategies covered depends on your objective.

option strategies covered

If you are selling covered calls to earn income on your stock, then you want the stock to remain as close to the strike price as possible without going above it.

If you want to sell the stock while making additional profit by selling the calls, then you want the stock to rise above the strike price and stay there at expiration.

Covered Call Videos

That way, the calls will be assigned. You still made out all right on the stock. Do yourself a favor and stop getting quotes on it. Maximum Potential Profit When the call is first sold, potential profit is limited to the strike price minus the current stock price plus the premium received for selling the call.

Covered Call

Maximum Potential Loss You receive a premium for selling the option, but most downside risk comes from owning the stock, which may potentially lose its value.

Ally Invest Margin Requirement Because you own the stock, no additional margin is required.

option strategies covered

As Time Goes By For this strategy, time decay is your friend. You want the price of the option you sold to approach zero.

  1. Twitter Peggy James is a CPA with 8 years of experience in corporate accounting and finance who currently works at a private university, and prior to her accounting career, she spent 18 years in newspaper advertising.
  2. A purnov training in options trading
  3. A covered call refers to a financial transaction in which the investor selling call options owns an equivalent amount of the underlying security.
  4. Estimated value of an option
  5. By Lucas Downey Updated May 29, Traders often jump into trading options with little understanding of the options strategies that are available to them.

That means if you choose to close your position prior to expiration, it will be less expensive to buy it back. Implied Volatility After the strategy is established, you want implied volatility to decrease.

option strategies covered

That will decrease the price of the option you sold, so if you choose to close your position prior to expiration it will be less expensive to do so. View the Option Chains for your stock. Option strategies covered Return assumes the stock price is unchanged at expiration and the call expires worthless.

If Called Return assumes the stock price rises above the strike price and the call is assigned.

See also