Options Trading

[jethreauxdawg]

All right stock gurus. Question about options trading. Not the fancy stuff, just basic selling of covered calls. I’ve got a few stocks that I’ve had for a while that I’d be OK with selling or continuing to hold. I’m thinking of selling a covered call contract on them. I see only a couple risks. One being my lost opportunity if the stock price shoots way past the strike price of the contract and then I just lose those potential gains. The other risk could be the stock plummets while under contract and I can’t sell during that time. My upside is to make a few %. Selling covered calls seems like a relatively low risk, low reward scenario, unless the stock is super volatile. Am I missing something?

 

[Jeffreauxdawg]

You pretty much nailed it. Selling covered calls are great on big mega cap blue chips. They tend to move a little slower so you don't have all of the downside risk of holding or selling early and leaving your call naked.

It's a different game these days though. The amount of options being sold and bought have skyrocketed and big yields are available in meme or popular stocks. Also bigger upside and downside movements.

Generally speaking, covered calls are a great way to increase income on long positions that you are not opposed to trimming. An easy way to start is not sell calls on your entire position. Just take it slow until you get comfortable.

 

[Mobile Bay]

If you are worried about missing out on a jump, just avoid earnings call week and sell short term contracts only. Also keep in mind if you have a $100 stock you are forced to sell at $110 because it jumped to $115, it isn't the end of the world. You still made the $10 a share plus whatever you made off the shares selling contracts.