Covered calls

Covered calls are calls that you are selling while you own the stock.

So for example you buy a 500 stocks for 38$ and decide to keep it for a while.

And you find that you can sell call for them for three month for the strike price (sell price) of

40$. For selling this calls you get paid 2.5$ per stock.



If the stock rises above 40$ before the three month are over you will have to sell the stock to the call buyer for 40$. So you made:



500* 2.5 + (40-38) * 500 = 2125$ you made 11.2%





If the stock rises doesn't reach 40$ before the three month are over the call buyer will not be interested to buy the stock from you.

So you made:

500* 2.5 = 1125$ you made 5.9%



If the stock falls bellow 38$ at the end of the three month the call buyer will not be interested to buy the stock from you.
So, on selling the call you made: 500* 2.5 = 1125$
But, on the price fall you lost... if the price didn't fall more than 2.5$ you still made some money...


Searching for covered calls

Goto Searches-> Covered calls -> investools method cover calls.

Same with ETFs