Individual investors need to take a serious look at covered calls. This is especially true for investors who feel options are a highly risky trading vehicle.
So, what is a covered call?
By definition…a covered call is a conservative options strategy whereby an investor holds a stock or ETF in an asset and sells call options on that same asset to generate increased income. Unlike buying options outright, covered calls are a conservative strategy. In fact, covered calls are the only options strategy that is allowed in retirement accounts.
All you need to initiate the strategy is 100 shares of stock and a liquid options market. By liquid, I mean options with significant volume . If you own at least 100 shares of stock, then you have the ability to “sell a call” against your stock (assuming it has options, which most do). Remember, 100 shares of stock equals one option contract.
So why sell covered calls?
If you wish to bring in residual income on a consistent basis or if your market forecast is neutral to moderately bullish selling covered calls is the appropriate options strategy.
A call backspread strategy should be employed on an underlying security that has a realistic chance of an explosive move higher.
A poor man’s covered call is similar to a traditional covered call strategy, with one exception in the mechanics.
Mini options trade exactly the same way as standard options. But because they are new, they are available only on a few underlying stocks and ETFs.
One of the most popular of all options strategies are covered calls, a trading technique that can generate rich income streams on a regular basis.
During a live event on Wednesday, Andy Crowder and I revealed three simple strategies for collecting extra income as part of our Income for Life Plan.