A Covered Call is a great trade strategy for someone who owns long stock. Sometimes, people have to own stock in certain types of accounts; perhaps they work for the company and receive stocks as a benefit, etc. Whatever the reason, the method of selling calls against a stock are the same. Here are some guidelines:
* You have to sell a call against an even 100 shares of stock (generally)
* The stock needs to be “Optionable”
* You have to choose a time frame and strike (See Below)
* You have to be authorized to trade at least “Level 1” options
Instead of explaining everything, I have included the video below from our sister-website, SellTheta.com
The rule of thumb that works well, is “One out, One up”, meaning the next month option and the next strike OTM. You may want to write, or sell, the option a little further out of the money if you have to keep the stock for some reason. If the stock hits the strike price you have chosen, there is a chance the stock could be called away at that price. There are some ways to prevent that, which can be the topic of discussion on this post. Feel free to ask any questions.
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