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.
Knowing everything you can about a company and making money are two different things. And confusing the two is where most investors, individual and professional alike, are led astray. Let's learn how to use vertical call spreads.
Randomness is always present in gambling, and it can indeed teach us the wrong lessons. But with a sound process or strategy, we know what to expect . . . and that is smart investing.
How am I preparing for 2017? By doing the same thing I’ve done for the last 18 years: selling options using credit spreads with a high probability of success. You can profit from these options strategies, too.
The primary measure of volatility, the VIX, has been fairly quiet since the election. Readings of the volatility index seem to say that a big selloff is NOT expected in January.
If you are a long-term investor (or you’d like to be), here are the full details of how you can beat the market in 2017 with the Small Dogs of the Dow strategy. It's simple and effective.