Cover calls
- Thread starter escortsxxx
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A covered call is the right to buy a stock but without obligation to buy, If you own a very popular stock like ENB, TRP or a bank stock you can sell a covered call on the stock. Usually in lots of 100 shares. If I were to buy your covered call I would pay you a few percent for the covered call. I would then have the right to buy at the agreed price within a agreed time, but not the obligation to buy. If your stock is worth $10 and it goes up to $12. I would have the right to buy at the lower agreed price. Should the stock go down to $8 I would let the covered call lapse and only be out the price of the call option ( a few % )
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I am aware what they are but thanks... You did not know my level of knowledge. I'm interested in Selling covered call on stock I have. I noticed that you can sell Call for High percentage depending on the length of the option to buy . Who are you talking like 10% in some cases.
From my understanding if the stock just stays put goes down You keep the stock. I guess 1 disadvantage is that you're not allowed to sell this talk anymore Until The option runs out? So for example I have I sell for $1 a 3 month option on the $10 stock. So I make my 10%. Well then I want to later the stock targets to go down It's $9 and $8 and $7 et cetera. What's in somebody has a right to buy my stock for the next 3 months I just have to let it sit there going down. He's not gonna buy for $10 but he has the right to do so. If I don't have a stock I'm in trouble.
Covered calls are bought mostly by large financial institutions. Their analyst have calculated the probability that the stock will go up. They are already buying up as many shares as they become available at the right price. By buying the covered call they do not have to lay out the full amount and can buy at the lower price as the stock price increase.
To make an analogy of the situation, you are playing chess with a Grand Master.
To make an analogy of the situation, you are playing chess with a Grand Master.
it's sub optimal most likely ....it's treated as income for tax purposes if you're selling in a non registered account
and you realize you largely cut off the right tail of the distribution (gains) and slightly cutting off the left tail (losses ) ...it's equivalent to a short put
it could work in a flat market or if even if the stock falls ..ie you hold the stock, and hope it rallies back and hopefully by that time the option is expired or does not your breakeven point
but ya, good luck timing the above scenarios
It seems to be a popular Among Investor class. With safe that is flat market stocks you could generate 10-20 percent While holding the stock That just supposed to be a storage of money ie safe low interest investment.
Oh yes it's not really worth the paperwork unless you're going to do it within your tax free account If you're only gonna do it for a little bit of gain
it relies on market timing which is difficult to do ...and the investor class aka retail money aka dumb money tends to think they can outsmart / time the market
Never bothered learning about options, shorting, etc. Not only is it very complex, it never made sense to me to pay a premium for the right to buy/sell.
