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.
I’m focusing this week and next entirely on strategies for selling puts. It’s time to look at the basic strategies that can work in good markets and bad.
In our discussion on the benefits of put-selling trades, here’s a specific high-probability trade that I sent to my readers involving the SPDR S&P Oil & Gas Exploration and Production (NYSE: XOP).
Don't throw your money away on low-probability trades. Attend this free event on selling puts and learn more about how we use options for income.
In our groundbreaking training event, I'll show you how to put instant income in our account . . . and exactly how this put-selling strategy works in my own $10k account.
Coupling a long put with a simple covered call strategy provides the ultimate protective strategy.