Options trading selling calls
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The Strategy Selling the call obligates you to sell stock you already own at strike price A if the option is assigned. Options Guy's Tips As a general rule of thumb, you may wish to consider running this strategy approximately days from expiration to take advantage of accelerating time decay as expiration approaches. Break-even at Expiration Current stock price minus the premium received for selling the call. The Sweet Spot The sweet spot for this strategy depends on your objective.
Maximum Potential Profit When the call is first sold, potential profit is limited to the strike price minus the current stock price plus the premium received for selling the call.
Maximum Potential Loss You receive a premium for selling the option, but most downside risk comes from owning the stock, which may potentially lose its value.
Ally Invest Margin Requirement Because you own the stock, no additional margin is required. As Time Goes By For this strategy, time decay is your friend.
Implied Volatility After the strategy is established, you want implied volatility to decrease. View the Option Chains for your stock. Static Return assumes the stock price is unchanged at expiration and the call expires worthless. If Called Return assumes the stock price rises above the strike price and the call is assigned.
Adjustment to Call Option: When a call option is in-the-money i. Some of them are as follows:. Similarly if the buyer is making loss on his position i. Trading options involves a constant monitoring of the option value, which is affected by the following factors:. Moreover, the dependence of the option value to price, volatility and time is not linear — which makes the analysis even more complex.
From Wikipedia, the free encyclopedia. This article is about financial options. For call options in general, see Option law. This article needs additional citations for verification.
Selling the call obligates you to sell stock you already own at strike price A if the option is assigned. Covered calls can also be used to achieve income on the stock above and beyond any dividends. The goal in that case is for the options to expire worthless. As a general rule of thumb, you may wish to consider running this strategy approximately days from expiration to take advantage of accelerating time decay as expiration approaches. Of course, this depends on the underlying stock and market conditions such as implied volatility.
Beware of receiving too much time value. Check for news in the marketplace that may affect the price of the stock. Remember, if something seems too good to be true, it usually is.
Covered calls can be executed by investors at any level. The sweet spot for this strategy depends on your objective. If you are selling covered calls to earn income on your stock, then you want the stock to remain as close to the strike price as possible without going above it.
If you want to sell the stock while making additional profit by selling the calls, then you want the stock to rise above the strike price and stay there at expiration.
That way, the calls will be assigned. You still made out all right on the stock. Do yourself a favor and stop getting quotes on it. When the call is first sold, potential profit is limited to the strike price minus the current stock price plus the premium received for selling the call.