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.
Realistically, do we think the market is going to repeat its performance from several years ago, when the S&P 500 rallied 32.4% in one calendar year?
Investors are at the mercy of the market gods when it comes to long-term investing, but that doesn’t mean that a buy-and-hold strategy should be avoided.
The increase in the popularity of weekly options has made for highly efficient products that offer tight bid/ask spreads.
Of the 10 most popular stocks, the position most widely held among investors 65 and older is General Electric.
Rolling is the most common form of adjusting a position, and provides the ability to be proactive when a position is being tested.