Is selling covered calls a good Strategy?
Wait, so you can sell PUTS to make money, and now you’re telling me you can sell and buy CALL options too?! Writing Covered Calls for Income does exists too.
Writing covered calls for a living is what some traders and investors do. Believe it or not, just like Selling PUTS, you can profit each and every month. Do you want to know what else is cool?!
The shares that you already own, can make you money even if their price does not move! WHAT?!
NO WAY! BUT YES WAY!
This is what is overlooked by beginners, and as always, those that don’t know, what they don’t know.
So, are covered calls a good strategy? They are if you own shares, and their prices are moving sideways. Or you have a short term bearish assumption.
For every 100 shares that you own of a certain stock, and if optionable, you can sell 1 contract on them.
You can also do a debit spread, or credit spread with calls, but I won’t confuse you too much right now!
A call option contract, when buying a call, is where you expect the price to go up.
When selling a call, you expect or assume the price of the stock to drop.
So what is a CALL?
Call options are contracts that give the option buyer the right, but not the obligation, to buy a stock, bond, commodity or other asset at a specified price within a specific time period. The stock, bond, or commodity is called the underlying asset.
A call buyer profits when the underlying asset increases in price thus not having to worry about taking over the asset.
Just like selling PUTS, you can purchase a CALL to get into a stock much cheaper, if you believe the price will go up. But who buys, instead of sells? Sleepy traders who don’t know how to invest.
Those that do buy CALLS, often buy LEAP options, or Poor Mans Covered Calls, which you can find in my portfolio and learn more about those.
Writing covered calls for income is a great way to make money off of the stocks or shares that you own. If the prices are moving sideways, or not too much, then you can sell covered calls against your shares. Hence, this is why it’s called covered, because you have the asset to cover the risk or position.
Let’s say that you own XYZ stock, and have 100 shares. You bought the shares at $50 per, and now they are trading for $60 per share. You already are up in profits but then all of a sudden, the share price has stopped moving for a few days and it looks like they won’t be increasing anytime soon.
You can go out 30 to 45 days roughly, and this is the time frame that I usually pick, because of THETA or time decay. The curve is much more rapid and thus reduces time in the market. You write a covered call for the 70 strike price.
This means that if your stock DOES NOT go up to 70 before or at the time of the option expiration, then you get to keep the premium collected, and get to keep your shares.
If the price DOES move up and past 70, it could be $70.01 and it is now exceeded the strike price of the option contract you had wrote. You get to keep the premium, but have to let go of the shares. Since you had purchased the shares at $50, you now let them go for a profit of the premium collected for the contract you write, but also the difference in the prices of the shares!
But now for the risky part. You’re wondering right?
Well, when you purchase at $50 but the stock drops, and you decide to still write covered calls, let’s say at $45, and the stock breaks $47, but not your original purchase price at $50 per share, then you let go off your stock for a loss, minus the premium you took in for selling the contract.
As always, there’s ALWAYS A RISK to making and investing money.
Knowing how to invest and minimizing your risks, is what makes or breaks within the investing market.
Investing With Chris Jackson Will Help You Minimize Risk:
When you have me as your mentor, you'll have access to me almost daily! We'll connect 3 to 4 times a week, and you'll not only have access to my Zoom meeting area at anytime, but also have me on speed dial!
Hey I get it! You're a self learner, and I love that! I am too!
If that's the path you want to take, at-least take it with me!
I grew up in a small town, about 35,000 people, and not really on the wealthy side.
I am now in my late 30's and it took me what seemed like forever to finally GET IT!
I realized what I needed to do, and here I am helping others!
Pick up a book, or two of mine, subscribe to me on YouTube, join my investors group on Facebook, or even take one of my courses, it's of course totally up to you! But I know you'll learn one thing, that you did not already know with me 🙂
Good luck in this new adventure, and I look forward to seeing you succeed!
How To & Tips
- Sell (OTM) Out Of The Money Calls you own shares of.
- Sell When IV is High (Compare IV Rank)
- Buy When IV is Low
- Sell Covered Calls at 20-30 Delta
- Buy CALLS when the stock price has dropped and charts show a trend is reversing at the (ITM)In-The-Money .80 or .90 Delta.
Guide to Covered Calls
With my ebook, I go into detail and explain how to sell and write covered calls for monthly income.