Covered Call Options
Trading Stock Options
Selling a covered call is a strategy that focuses on generating income on a stock that you already own. Covered calls work best for investors who favor current income, lower risk, and steady stocks over high-growth investments.
The great thing about covered call options is that you can put it to work on almost any stock that you already own.
For example, say you own 100 shares of Intel. You like the business, but you would be willing to sell your shares at a certain price above what you paid for.
With a call option, you can agree to hand over your 100 shares of the stock (called the “underlying”), on a particular day (called the “expiration”), at a particular price (called the “strike price”).
This is known as “selling” (and sometimes “writing”) a call option… The call buyer pays you money (called the “premium”) today in order to enter the contract. They agree to buy the stock from you at that price, but it’s their option to exercise or not. They are the buyer of the option, and you’re considered the seller.
A sideways-moving market… or even a market correction… is a great time to initiate a covered-call strategy. Selling covered calls lets you “earn your way out” of a position that’s in negative territory.
You collect the stock dividends as well as a premium for selling the covered call options.
When you sell options, Puts or Calls you receive the premium; when you buy an option you pay the premium.
When you sell an option, you are hoping that the option contract expires worthless, you get to keep the premiums and sell another contract for more premiums into the future.
You will need to get approval from your brokerage firm to trade options, approval will depend on how much you have in your portfolio, your net worth and trading experience.
You can trade covered calls in both a regular non-retirement account and a qualified retirement account such as an IRA.
Below I provided a video with more helpful information.
Daniel F. Iuculano, AAMS CMFC
Accredited Asset Management Specialist
Chartered Mutual Fund Counselor
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