By Steven Place
Develop into a greater dealer utilizing coated name concepts
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Extra resources for Covered Call Trading: Strategies for Enhanced Investing Profits
TRADE EXAMPLES We're going to go through a handful of trades that I have put out on my site IWO. This will include winners as well as hilarious losers. We'll start with some simple ones first. Fading Rate Risk in XOM In August of 2013 I wrote: Exxon Mobile has seen a significant selloff off its recent highs. " As treasury yields rise, funds go out of high-dividend yield names because if you can get the same rate of return with less risk, then you reallocate accordingly. That's why stuff like consumer staples and REITs have not done so well.
Because the reward in a covered call is limited, this is fairly straightforward. Maximum return is the difference between the option strike and the basis. This is effectively the highest transactional value that you can receive. Now if your call is "in the money" (ITM), it means that the value of the stock is higher than the value of the option strike. It may seem as though the transactional value would be lower. But because we calculate the basis for ITM options a little differently, then this issue is worked out fairly simply.
A covered call is a very simple option position. This is one of the simplest trading strategies to master-- I believe that it is easier to learn than option buying! A covered call is the combination of buying stock and then selling a call against the stock. The process of selling a call is also known as “writing,” which is why a covered call is also known as a “buy-write” trade. Let’s talk about the mechanics of options so you can better get an understanding of what this trade accomplishes. The options market is completely different than the stock market.
Covered Call Trading: Strategies for Enhanced Investing Profits by Steven Place