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A covered call involves selling a call option on a stock that you already own. By owning the stock, you’re “covered” (i.e. protected) if the stock rises and the call option expires in the money.
“Sell to open” is an instruction to sell or short an option to open a transaction, while “sell to close” means the reverse: closing a transaction by selling an option purchased for the ...
Covered calls are bullish by nature, while covered puts are bearish. [1] [2] The payoff from selling a covered call is identical to selling a short naked put. [3] Both variants are a short implied volatility strategy. [4] Covered calls can be sold at various levels of moneyness. Out-of-the-money covered calls have a higher potential for profit ...
Payoffs from buying a butterfly spread Payoffs from selling a straddle Payoffs from a covered call. Combining any of the four basic kinds of option trades (possibly with different exercise prices and maturities) and the two basic kinds of stock trades (long and short) allows a variety of options strategies. Simple strategies usually combine ...
A covered call position is a neutral-to-bullish investment strategy and consists of purchasing a stock and selling a call option against the stock. Two useful return calculations for covered calls are the %If Unchanged Return and the %If Assigned Return. The %If Unchanged Return calculation determines the potential return assuming a covered ...
You can sell a call on the stock with a $20 strike price for $2 with an expiration in eight months. One contract gives you $200 ($2 * 1 contract * 100 shares). Here’s the trader’s profit at ...
Selling a naked option could also be used as an alternative to using a limit order or stop order to open an equity position. Instead of buying an underlying stock outright, one with sufficient cash could sell a put option, receive the premium, and then buy the stock if its price drops to or below the strike price at assignment or expiration ...
5. Sell Covered Calls. Selling covered calls is a more conservative option strategy that carries lower risk and lower reward. When you sell a covered call, it means you sell a call against a stock ...