Can someone help me with my first covered call?

[kmiklas]

My buddy at work dearly loves covered calls, and keeps encouraging me to try the strat.

I've never done it, and could use some help.

As I understand it, a covered call means to go long and sell a call on the same equity, at the same time.

1. how do I make money in this?
2. What's a good equity to start with?
3. How can I lose?

Thx, Keith

 

[Robert Morse]

#1-If the stock goes up or run sideways
#2-can't answer that for you-It is a long portfolio with limited upside.
3#-If the stock goes down

BTW, I hate buy write and would never do them 1:1. I have made this comment with details before. Why would I take the time and effort to stock pick and then limit my gains when I'm right but not limit my loses when I'm wrong. Hate them!!

 

[jeb9999]

Does your buddy at work know that a covered call is identical to naked short a put?

Too much risk on the downside for very limited upside reward. Best advice for covered calls is to not waste your time on them.

 

[cafeole]

This strategy is used on stock you already own and want to keep for the long term because it is uptrending. If it is not uptrending it is not a good strategy (IMO)

1. You need to buy an uptrending stock you want to keep.
2. You have to predict the peak before a pullback and sell a call just after the peak.
3. Let the call expire.
4. Do number 2 again.

The idea is that you "rent" out the stock while it goes up.

 

[ironchef]

My buddy at work dearly loves covered calls, and keeps encouraging me to try the strat.

I've never done it, and could use some help.

As I understand it, a covered call means to go long and sell a call on the same equity, at the same time.

1. how do I make money in this?
2. What's a good equity to start with?
3. How can I lose?

Thx, Keith

From one newbie to another: If you really want to do it, pick up a book on options, read it thoroughly before jumping into it.

I started my option trading in 2013, writing covered calls on stocks I owned. After six months, a majority of my stocks were called away at times. Since they were long term holdings, ended up I bought them back at much higher prices. Net result: On those, I would be better off if I just held on to my stocks and collected dividends + appreciations. To add insult to injury, I had to pay capital gain on the stocks that were called away. Of course many of the calls expired worthless so I kept the premium.

Net/net, not worth it for me: I don't think the market is dumb enough to give me free money to blindly write cover calls. You need knowledge to make money trading options.

 

[cafeole]

After six months, a majority of my stocks were called away at times.

Yea, you have to buy back the calls if you want to keep the stock.

 

[ET180]

Yea, you have to buy back the calls if you want to keep the stock.

Or if you're really confident that the stock goes higher, short a naked put at a higher price.

Does your buddy at work know that a covered call is identical to naked short a put?

Too much risk on the downside for very limited upside reward. Best advice for covered calls is to not waste your time on them.

If you see a lot of downside and very limited upside, then that's a perfect candidate for selling naked calls or vertical call credit spread if you think there might be a bit more than limited upside. If you're feeling highly confident that the stock will move to the downside, then consider buying a put or shorting it / covered short.

Bottom line, pretty much anything that you can do with stock, you can do with options.

 

[JSOP]

From one newbie to another: If you really want to do it, pick up a book on options, read it thoroughly before jumping into it.

I started my option trading in 2013, writing covered calls on stocks I owned. After six months, a majority of my stocks were called away at times. Since they were long term holdings, ended up I bought them back at much higher prices. Net result: On those, I would be better off if I just held on to my stocks and collected dividends + appreciations. To add insult to injury, I had to pay capital gain on the stocks that were called away. Of course many of the calls expired worthless so I kept the premium.

Net/net, not worth it for me: I don't think the market is dumb enough to give me free money to blindly write cover calls. You need knowledge to make money trading options.

They were probably called away because of the dividend and it being large enough cuz that's the only time when exercising is worth it otherwise they would've just sold the calls to close the position.

 

[ironchef]

They were probably called away because of the dividend and it being large enough cuz that's the only time when exercising is worth it otherwise they would've just sold the calls to close the position.

Don't know, but I held the calls till expiration and when they were in the money, they were called away - assigned, always. So, a day or two afterward, I bought the stock back at the higher price because I wanted to keep the stocks.

 

[Saltynuts]

They were probably called away because of the dividend and it being large enough cuz that's the only time when exercising is worth it otherwise they would've just sold the calls to close the position.

Curious, one can turn around and sell the option as long as expiration is not in the immediate future, but if the option is in the money, and is expiring in 7 seconds, one HAS to call the stock or otherwise have it expire worthless no? Thanks.