Can someone help me with my first covered call?

[JSOP]

I am still puzzled.

On 1. why would he give up a sure profit? On 2. whoever bought, why not exercise for profit?

1) When they can get more by selling the options in the market. And 2) Profiting with the underlying cannot be guaranteed. Some brokers do not allow the shorting of the underlying for you to lock in the profit and you won't get the underlying right away after exercising. For example, the VIX ETF/ETN's like VXX, UVXY and etc., many brokers don't allow the shorting of these instruments and the brokers take at least 2 days to settle the exercising so by the time when you get the underlying the price might have moved away big time especially with those VIX instruments being so volatile so exercising these options are actually risky for the holders.

 

[ironchef]

When they can get more by selling the options in the market.

I wish that happened to my trades, i.e., no one exercised my ITM at expiration covered calls.

 

[JSOP]

I wish that happened to my trades, i.e., no one exercised my ITM at expiration covered calls.

Well like I said, according to the option council, only close to 30% of the options are exercised.

 

[silver182]

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

1. If you sell a "covered call" option and choose a strike price below what that stock a stock "you own" is selling for at close on expiration day, one penney lower "You Win." Do this a hundred times and you win a hundred times... i.e. you still own the stock and you pocket the proceeds from selling the option, plus you collect all dividends on the stock you own. Selling covered calls is a way of increasing income for every stock you own.
a. You make what you sold the option for... minus commissions, plus any dividends paid during the life of the option. This is a winner even if the stock price goes down alot because you still pocket all dividends and you still own the stock you love.

2. A stock that you own obviously is the safer way to sell covered calls. Large portfolios lend themselves well to this option strategy. Low volatility stocks are better candidates for selling options on. Remember you never want the stock price to be at strike price on expiration day!

3. You can't lose, if you sell covered calls on stock you own! If the stock goes down in price you still get paid all you sold the option for, and you still own your stock. Only buy stock you want to own long term! A good dividend payer is a better candidate.

4. A well thought out, well managed strategy of this sort is a winner.

5. Yes you could lose money by having to sell your stock at the strike price, but a well managed well thought out system..means you still will make money on the option & selling your stock.....just not as much as you would have if you still owned the stock. Be more careful if you've owned the stock for many years because you now will have capital gains if your stock is called away! That could be considered a loser..of sorts.

6. If you own the stock and are willing to sell those shares at the strike price, in consideration for keeping the option proceeds and dividends along the way...it is a Win Win strategy.

 

[kmiklas]

1. If you sell a "covered call" option and choose a strike price below what that stock a stock "you own" is selling for at close on expiration day, one penney lower "You Win." Do this a hundred times and you win a hundred times... i.e. you still own the stock and you pocket the proceeds from selling the option, plus you collect all dividends on the stock you own. Selling covered calls is a way of increasing income for every stock you own.
a. You make what you sold the option for... minus commissions, plus any dividends paid during the life of the option. This is a winner even if the stock price goes down alot because you still pocket all dividends and you still own the stock you love.

2. A stock that you own obviously is the safer way to sell covered calls. Large portfolios lend themselves well to this option strategy. Low volatility stocks are better candidates for selling options on. Remember you never want the stock price to be at strike price on expiration day!

3. You can't lose, if you sell covered calls on stock you own! If the stock goes down in price you still get paid all you sold the option for, and you still own your stock. Only buy stock you want to own long term! A good dividend payer is a better candidate.

4. A well thought out, well managed strategy of this sort is a winner.

5. Yes you could lose money by having to sell your stock at the strike price, but a well managed well thought out system..means you still will make money on the option & selling your stock.....just not as much as you would have if you still owned the stock. Be more careful if you've owned the stock for many years because you now will have capital gains if your stock is called away! That could be considered a loser..of sorts.

6. If you own the stock and are willing to sell those shares at the strike price, in consideration for keeping the option proceeds and dividends along the way...it is a Win Win strategy.

Thank you! This is very helpful.