Covered Calls: How and Where do you Start?

Covered Call Option Strategy

Where do you start when you want to start trading stocks and covered calls?

That is the topic in this video. In it I go over how to get started, how to calculate how much money you need to get started, what you can make, and some simple guidelines I wish I knew when I got started.

Covered Call Explained

Also known as “buy-write”, a covered call is a financial market transaction and an options trading strategy where an investor owns the corresponding amount of the underlying instrument, such as shares of a stock or other securities.

If you currently limit your asset mix to traditional investments, then you’re missing out on what could be a powerful tool and opportunity for growing and protecting your net worth.

The rewards of options investing can be far greater than the potential gains of buying or selling stock. However, the risks are also greater. For those of us who love the extra challenge of option investing, it is worth every minute of time you spend.

Don’t forget to check out our blog for awesome online investing and options trading updates. Also, please browse our products and training section and learn the art of selling options.

16 Comments

  1. Jeff on November 12, 2011 at 6:51 am

    Selling Covered Calls is NOT the same thing as selling Naked Puts. But it would be accurate to say “Selling Covered Calls is the same as selling 100% Cash-Secured Puts when done at the same strike price and for the same expiration date.”

    • Genius on November 14, 2011 at 11:47 am

      Hmm, getting more complicated here. One could argue that selling naked puts that are not cash secured is even safer than covered calls if you do not have a large trading account because the broker will step in with a margin call and liquidate your position for you. But when looking at a risk graph for both covered calls and naked puts they are almost identical and so for most discussions they can be thought to have the same risk.

    • Bimal Kundu on November 17, 2018 at 8:58 pm

      Which is better? What about Buy Leap and sell call against that ? That is probably the best.Please confirm>

  2. John Benadum on November 12, 2011 at 3:59 pm

    Diagonals seem to be the way to go instead of covered calls.

    I am setting up a trade on SLV. Looking at buying the July 12 26 calls (@ 9.85)and selling the Dec 11 29 calls (@ 5.15)

    4.75 debit spread. Is this something that you would or would not do?

    Thanks,

    John

    • Genius on November 14, 2011 at 11:53 am

      This is an interesting trade. Do you have a direction in mind or do you tink silver will just sit here. I myself think it will probably drift higher. Since you are selling an ITM call, the time decay will not work as fast, so you might want to move the 29 up a little. And I like the fact that you get to roll the Dec to Jan, Feb, Marc, etc. for additional credit. I like this trade.

    • John Benadum on November 14, 2011 at 9:29 pm

      Thanks for the quick response. I think that SLV will slowly move higher as well. The 29 does look too aggressive.
      In fact I reworked this trade to buy the April 12 28 calls (@ 7.25) and sell the Dec 11 calls (@ 1.95) for a debit of 5.30
      I read that on diagonal trades we should keep the debit (5.30) amount at or below the difference in the strike prices (5.00) This comes close and I can probably work it so that it actually happens. This is supposed to allow this trade to be a winner even if SLV explodes to the high side. Does that make sense to you?

      • Genius on November 14, 2011 at 10:38 pm

        If it explodes higher then you will need to start rolling the short call higher and higher which will eat up your profits

        • John Benadum on November 15, 2011 at 4:06 pm

          Thanks for your wisdom on the diagonals. I did take the trade live earlier today. So far it looks good (inched up nice). See what happens by the 3rd week in Dec.
          I stayed with a small position. Tempted to go bigger as I did like selling the $2.00 Dec 33s. Have a great week.
          John

        • SlickOne on September 13, 2017 at 9:43 pm

          Rolling the call will not eat the profits. In fact your profits will grow because the credit you gain from selling the calls will get richer as the stock price goes higher.

          • Ameen Kamadia on September 14, 2017 at 8:00 pm

            Yes but you have to buy back the call you already sold. That costs money. Hopefully you get a larger credit than the debit to buy back the original call, but that is not always the case.



  3. Duane Baron on November 13, 2011 at 1:08 pm

    How do you subcribe to this service, if this is a service. Thank You!

  4. Roger on November 13, 2011 at 2:14 pm

    Where is a good source of charting and buy/sell indicators for day trading/ i want to try a little day trading. Do you offer a service or where can I find a service?

    Very good video, you can lose a bunch on trading covered calls by themselves without downside protection.

    Thanks,
    Roger

  5. GP on May 22, 2013 at 9:05 am

    I know now that I have done the wrong thing. I sold puts on a company (UNXL) that at the last day of expiration is going down like a rock and have another expiring in June. Can you tell me the best way to handle the one I had to buy the stock and the one yet to expire. If you can help, it’s urgent before I lose…..Thanks.

  6. Jermaine on September 25, 2014 at 12:57 pm

    I usually do (for years) cash covered/naked puts to aquire the stock and then do either covered calls or collars (if the stock starts heading down to stop the bleeding), then I may sell even lower strike puts to collect more income. Has worked for me so far. Currently trading 3 different accounts using these strategies. I also do short strangles/straddles as well. I occationally do bear calls/bull puts/IC’s.

  7. KEITH HARRISON on September 3, 2017 at 11:30 pm

    Allen: I joined some years ago when 80. Decided to follow your advice and try something else. Now I get you new ad. and once again, am interested. Have about 40,000 and want to make pin money and not lose a lot at worst. Something in your various blurbs troubles me. You say, and I think correctly, that trading takes time, dedication, concentration. You also say in your general biographical introduction that trading doesn’t take up much of you day and you can go away for long holidays and seem to have no financial worries. Something seems amiss in the logic here. I think you mean to say that now that you have a method and lots of experience you don’t have to spend ALL your time trading but you did have to for a long time before you got to your present position. Would appreciate clarification on that.

    Second: you have scheme where you let us choose an automatically engineered trade which you have worked out. I know we do the trading and you do the work but I’d like to know how successful this has been for your clients over the years, and how much one needs to start.

    Would much appreciate a few words on those two matters.
    Very good to hear you’re still doing well, and I hope the recents horrors in Texas have not been too hard on you and your family.

    My best,
    Keith Harrison,
    ( now 85, still teaching and playing gold, and anxious to learn how to make just a small amount on the side.)

    • Ameen Kamadia on September 5, 2017 at 8:21 pm

      Keith,
      Welcome back.

      It takes time and practice to get good at anything. So yes, I put in a lot of time and effort to learn how to trade this way. But now, I can reap the rewards. And the rewards include not being glued to the screen, a passive trading style, and high probabilities.

      As for our services, we are doing very well. 2017 has been an awesome year for us so far.
      We were hit hard by Hurricane Harvey but did not suffer any damage. Thanks for asking.

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