How and Why to Use a Covered Call Option Strategy.
Determining the best time to write covered calls is an important question and issue. Writing calls against shares of stock you own can be a good conservative option strategy, but there are still risks to both the upside and downside, so choosing the opportune time to write your calls is crucial.
A covered call is an income-producing strategy where you sell or write call options against shares of stock you already own. Typically, you’ll sell one contract for every 100 shares of stock. In exchange for selling the call options, you collect an option premium.
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. Learn the basics of selling covered calls and how to use them in your investment strategy.
Covered Calls. Explore covered calls and learn to use one of the most common options strategies to your advantage. Covered calls allow you to sell, or “write” a call option on shares you already have in your portfolio for a contract price that is credited to your account. You may also profit from limited stock price appreciation and dividends.
Using the covered call option strategy, the investor gets to earn a premium writing calls while at the same time appreciate all benefits of underlying stock ownership, such as dividends and voting rights, unless he is assigned an exercise notice on the written call and is obligated to sell his shares.
When you write covered calls you must do one of the following: If exercised, sell stock to the option buyer at strike price anytime before expiration. Buy the calls back on the open market before exercise. Let the calls expire unexercised (on the third Friday).
Writing Covered Calls On Stocks About To Go Ex-Dividend Shorting a call option on a stock you own just before its ex-dividend date is a common income-oriented strategy. Assuming the covered call is not exercised, you will receive both the dividend income and the call option income.