The Covered Call

The Covered CALL is an exciting way to add revenue to an existing Basic stock play you have open. It is the safest option trade you can make and it adds dollars to your portfolio the minute you open up the trade. For example, if you buy XYZ stock on the Basic Strategy for say $80, you can sell someone the right to buy that stock on expiration date (the third Friday of each month) for $85. That person will pay you whatever the going time premium is at the moment. Stocks that are on our Basic Strategy tend to have high time premiums on their options so an 85 CALL may go for as much as $5. So this means that if you bought the stock for $80 and sold the right to someone to buy your stock for $85 on expiration day, you could have a $10 profit if the stock hits or goes above $85 on expiration day. Plus, you receive $5 of the profit in advance as mentioned above. (See Sample 1 Below)

The Covered Call does have a couple of drawbacks, one of which is if the stock goes much higher than the $85 to say $95, you could be leaving some profits on the table but as the saying goes, it is better to have a bird in the hand than two in the bush!

Another drawback can actually be a plus. Let's say the stock does not go up to $85 but instead goes down to say $78 on expiration day. You will not be called out in this case so you will continue to own the stock. But, you get to keep the $5 premium you got from the option. Plus, you can now cover the stock again with the next month's option and earn additional profits. There are quite a few exciting scenarios on this play which you will learn over time as you make the plays.

Members can login to the site and click on the Covered Call link to get the next play. Plus, when there is a Covered Call play, an email will be sent.

SAMPLE 1