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.
Want to play the precipitous decline in oil but have limited capital? Consider poor man's covered calls.
A ratio calendar combination involves two ratio calendar spreads: one with calls and one with puts.
The ratio call calendar spread is a strategy that’s ideal for playing an expected near-term drift followed by a bullish burst.
A ratio put calendar spread is best initiated when you expect little near-term volatility followed by a stronger move into the longer maturing expiry.
As an investor, I love contrarian opportunities. We’re seeing one those opportunities right now to buy cheap oil.