Name: Covered Call aka Buy-Write
Strategy type: Income
Outcome: Exposure to losses and limits extreme gains
How it works:
1. You need to own the stock (pre-requisite)
2. You need to SELL out-of-money CALL options (locks in some profit and makes some income)
Profit-Loss hack: The stock is a dividend-paying stock. You never sell when it goes down. The stock is a buy-and-hold until you get exercised. However, if the stock has dropped a lot and you are worried about being exercised, this strategy needs to be modified to minimise losses.
Calculations:
- Income (if CALL not exercised) = CALL income + dividends
- Profit (if CALL exercised) = CALL strike price - stock purchase price + CALL income
- Loss (if CALL not exercised) = stock new price - stock purchase price + CALL income - all commission
Other professional views about this strategy that should be considered, read (always important to keep an open mind so as to make a better informed decision about the right/best strategy for me)
- http://www.forbes.com/sites/baldwin/2012/07/17/covered-calls-what-works-what-doesnt/#f3c3a1b59b83
- http://www.forbes.com/sites/baldwin/2011/11/02/getting-rich-off-options/#4e0032491197
Video information available:
- IndexInvestingShow (short) @ https://www.youtube.com/watch?v=8YjfWTm6j7
- Lilia L @ https://www.youtube.com/watch?v=5nmZPKbXFTo
- TraderInterviews @ https://www.youtube.com/watch?v=LBPu694h-q4
- TheoTrade, LLC @ https://www.youtube.com/watch?v=IchwhxDuIQg
Course on udemy: https://www.udemy.com/dont-leave-money-on-the-table-sell-covered-calls/
* Note that I am not making commission at time of writing because this blog is not monetized. This link is here as information only. I do not endorse this course. My job is to find information available online to make an informed decision about my trading. This does not mean that I will not attend trading course afterall, I trained many years to become a professional to make an income. Thus, I understand the importance of being properly trained to make an income. Having said that, work and trade are different. Work, you never quite lose because you get paid each hour you work unless your company is going belly up. Trade, you win some, you lose some. Hopefully, win more than lose!
For a more profitable variation, read
