Covered Calls

Covered calls offer investors low risk in exchange for limited reward. It's a basic strategy to execute, especially if you already own stock. If you own stock you are in a safe position on the trade; you are covered.

To implement the strategy, you would sell a call option on the stock you own at the next strike price up for the current month or next month out. You will receive a premium for selling the option, plus any profit in the stock price.

If you own a stock (or plan to buy a stock) that sells for $20, you can sell the call option at the next strike price up, in this example $22.50. This might bring a premium of $1 per share for selling the call. If the stock has reached $22.50 at expiration, you will be called out, earning you a $3.50 per share profit on the stock, the $2.50 gain in the stock price and the $1 in premium.

The drawback is limited profitability. The benefit is safety.

There are many options trading strategies available to BetterTrades students. Under the system developed by Freddie Rick there are strategies that can work under various market conditions. There are covered calls and bull put spreads for bullish market; iron condors and calendar spreads for a neutral market; and bear put spreads and bear call spreads for bearish markets. At BetterTrades, you can find a wealth of strategies that can fit your trading needs.

Bear Call Spreads | Bear Put Spreads | Calendar Spreads | Covered Calls | Iron Condors