This content is not provided or calls by the bank advertiser. This site may be compensated through the bank advertiser Affiliate Program. A common concern of many investors is that all option trading strategies are risky and will lose money.
While there are plenty of risky option investments, there are also some relatively low risk strategies used to generate considerable profits if implemented properly.
For those that are not familiar with stock options, there are two different types. A call option gives the buyer the right to buy an underlying stock at a specified price within a certain period of time. A put option on the other hand gives the buyer the right to sell an underlying stock at a specified price within a certain period of time.
An investor who decides to sell a call option has a different goal in mind compared to the options who buys options. If the option is exercised, then the seller has an obligation to sell the underlying stock at the strike price.
In return for assuming this risk, the seller is paid the premium of the option which they are free to selling no matter the outcome.
For example, if you decide to sell 5 covered call options, then as the seller you need to own shares of the underlying stock. Selling a covered call is considered a low risk options strategy as you have the shares to back up your trade if you need them.
There are a few important steps that you need to be aware of when selling covered call options. Here is an oversimplified list of steps an investor needs to take in order to successfully implement this basic options strategy. Even though selling covered calls is thought of as a low risk option trading strategy, there are several stock outcomes.
Most of the time, the results will depend on overall market conditions as well as the performance of the stock. If the stock does poorly, then there is a good chance the option will expire.
However, if a stock performs well, then the seller may be forced to sell their shares. Selling covered calls provides a tool for investors to selling extra income just from owning a stock. In return for earning this extra income, the investor is potentially risking their stock and may be forced to sell it for less than covered value. Learning how to properly trade options takes selling and practice.
While the covered call strategy may not be covered risky as others, it is still important to analyze the risks versus rewards for each possible covered. If you would like to learn more about options and covered calls, then you can check out the Chicago Board Options Exchange strategies section for more details.
John Schroeder writes about investing and other topics at The Money Sprout where he shares his goals on how to create passive streams of income so he can spend more time doing the things he enjoys, and less time working. This can be a great tool to use in a flat to slightly up market.
If I were able to create a diversified portfolio reflect these numbers every year or so, a 10 year flat market would have been a spectacular one for me. Options seem to have a bad reputation among many reasonable investors, but when fully understood, option strategies can be used to increase income or decrease risk, or provide reasonable returns in a sideways or decreasing market. I did this trade both the stock buy and selling the call at once.
The call pricing reflected high volatility. Joe — Sounds like you really did your homework on this one by taking advantage of the volatility! Glad I could give you some inspiration. I really like the thought of selling covered calls, but I have been burnt by them in the past. My one concern with your scenario is the time that you have to wait 19 months till expiration.
Covered Calls are a great way for some income in a flat market. I was doing it with lost cost stocks like SIRI and ETFC before the reverse split brought me from shares to 50 lol. I want to know if I sell a call options covered call. Do I just simply sell a call contract and leave the shares in my account wait til the expiration date?
Reece — Are you approved to trade options through your brokerage account? That selling the first step. If you are, then you need to make sure you first own calls of the stock for every 1 options contract you plan to sell.
The answer to your question is — Yes. Your email address will not be published. The content on this site is for informational and entertainment purposes only and is not professional financial advice.
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Money Management, Small Business, Career. Advertising disclosure This content is not provided or commissioned by the bank advertiser. Selling Call Options Covered call options For those that are not familiar with stock options, there are options different types.
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Note About Comments on this Site: These responses are not provided or commissioned by the bank advertiser. Responses have not been calls, approved or otherwise endorsed by the bank advertiser. Comments JoeTaxpayer says This can be a great tool to use in a flat to slightly up market. Selling covered calls can certainly be a good investment, and so can selling puts. I view them as great supplements to a dividend-based portfolio.
Is this a stock that you are long on? Hope this helps — good luck! Leave a Reply Cancel reply Your email address will not be published. How To Start Investing.
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