Say you picked up ko coca cola with the intent of selling covered calls every couple of weeks. Ko teading at 47 34.
Covered calls trading the old way.
How to make money selling covered call options. Covered calls are straightforward to implement and the risk is both defined and minimized. A covered call position is created by buying stock and selling call options on a share for share basis. Selling covered calls is a strategy in which an investor writes a call option contract while at the same time owning an equivalent number of shares of the underlying stock.
If you owned 100 shares of xyz corp. Selling covered call options can help offset downside risk or add to upside return taking the cash premium in exchange for future upside beyond the strike price plus premium during the contract. This strategy is commonly used when the call writer expects the stock price to decrease or to increase the probability of the option being exercised.
Covered calls will typically be your first strategy into options. If we were going to do a traditional covered call write on rmbs we would buy 100 shares of the stock and pay 3 860 and then sell an at the money or out of the money call option. Pick up shares of ko sell call jan 25 calls.
Selling in the money covered calls can be an excellent income generating strategy for those living off investments. Besides being an excellent first step into options covered calls offer a way to generate income on your long stock positions. Currently trading at 10 a share you might sell an.
You would pick up premium twice a month or more reducing your cost basis like so. The covered call writer is the person who creates the option promising to sell if the purchaser exercises. An in the money covered call strategy involves selling a call option with a strike price lower than the cost of the underlying stock.
Covered calls can be combined with dividend paying stocks to increase the amount of income from the position.