Thread
Tired of losing money trading options?
It's time for you to become the house.
Here's how to sell covered calls and add steady income to your portfolio:
It's time for you to become the house.
Here's how to sell covered calls and add steady income to your portfolio:
1/ Covered calls can generate extra income in a stagnant or down market
Here's how it works:
You own 100 shares of a stock & sell a call option on the same stock,
collecting premium income in exchange for giving up potential gains above the strike price
Here's how it works:
You own 100 shares of a stock & sell a call option on the same stock,
collecting premium income in exchange for giving up potential gains above the strike price
2/ The key to making money with covered calls is:
Own a stock that you don't mind holding for a while,
and sell call options with strike prices above (or way above) the current market price
Own a stock that you don't mind holding for a while,
and sell call options with strike prices above (or way above) the current market price
3/ If the stock price stays flat or drops,
you keep the premium from selling the call option.
If the stock price rises, you'll have to sell it at the strike price,
but you'll still make a profit from the stock's increase plus the premium.
you keep the premium from selling the call option.
If the stock price rises, you'll have to sell it at the strike price,
but you'll still make a profit from the stock's increase plus the premium.
4/ When choosing a stock, consider:
- Volatility
- Your own risk tolerance
- The strike price you sell at
- The expiration date of the call option you're selling
- Volatility
- Your own risk tolerance
- The strike price you sell at
- The expiration date of the call option you're selling
5/ To maximize your income:
Sell call options with a strike price closer to the stock's current market price and an expiration date within the next 2-3 months.
Be careful though, as these are more likely to be called away.
Sell call options with a strike price closer to the stock's current market price and an expiration date within the next 2-3 months.
Be careful though, as these are more likely to be called away.
6/ Keep in mind that selling call options will limit your potential gains on the stock, but will also reduce your risk.
7/ If you sell a call option and the stock price rises above the strike price, you'll have to sell the stock.
However, you'll have still made a profit from the increase in the stock price plus the premium you received.
However, you'll have still made a profit from the increase in the stock price plus the premium you received.
8/ Covered calls are a great strategy for conservative investors who want to generate a steady stream of income from their portfolios.
They can also be used as part of a broader investment strategy, such as managing risk or reducing the cost basis of a stock position.
They can also be used as part of a broader investment strategy, such as managing risk or reducing the cost basis of a stock position.
9/ It's important to remember that covered calls are not a guaranteed investment and there is always a risk of losing money.
Be sure to do your research and understand the potential outcomes before entering into a covered call trade.
Be sure to do your research and understand the potential outcomes before entering into a covered call trade.
10/ TD;DR
Covered calls can be a powerful tool for generating extra income, but they are not suitable for all investors.
Careful stock selection and an understanding of the mechanics of options trading are crucial for success with this strategy.
Covered calls can be a powerful tool for generating extra income, but they are not suitable for all investors.
Careful stock selection and an understanding of the mechanics of options trading are crucial for success with this strategy.
11/ If you're looking for more great threads explaining how to do this check out these from @StephenCFU_ & @DecadeInvestor :
@StephenCFU_ @DecadeInvestor If you like threads like this, you’ll enjoy my newsletter, Market Madness.
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