Learn how to increase your gains by selling covered call options.
Video version of the episode: https://www.youtube.com/watch?v=SrBTqAVtqjo
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In this video I will describe an #options #trading strategy that will allow a stock market investor to increase their gains on long term #investments. Welcome back to the SK investing show. My name is Sam and today I will be your #options tour guide.
Disclaimer I am not a financial advisor and this video should not be taken as financial advice. Everything in this video if for entertainment purposes only. After all this is just a random video on youtube.
Before we get into #Covered #Calls lets start out with some #options Basics: Buying #Call #Options (Bullish #Strategy) When you think a stock’s price is going to rise.
When you purchase a call option, you are buying a financial contract that gives you (the buyer) the right, but not the obligation to buy a #stock at a specified price called the “Strike Price” within a specific time period.
Sounds complicated I know.
Lets say for instance we think #Apple’s stock is going to go up this week. So we can look at Apples Option chain and select to purchase 1 call contract expiring this friday.
By purchasing this call option we are given the right to purchase 100 shares of #Apple #stock at the strike price we selected on or before this friday IF Apple’s price rises above the strike price.
Premium is the amount the buyer pays the seller for the contract. Basically a fee for the ability to buy a stock at a certain price.
If Apple’s price closes on Friday below the strike price then our contract expires worthless because it is cheaper for us to buy Apple at market price.
Covered Call:
In this strategy we won’t be BUYING call options, but instead we will be selling call options. Lets remember: a Call option gives the buyer the right to purchase a stock at a certain strike. Now what does it mean to sell a call? Just like buying and selling stocks, there has to be a buyer and seller of options. Selling a call option means you (the seller) are giving the buyer the right to buy your shares at a certain price, for a premium. A premium is the price of the contract the buyer pays the seller. Remember in the earlier example of buying calls on Apple and we had to pay a premium? Well this time since we are the seller, we get to collect that premium. In order for this to be a “Covered Call” you need to own 100 shares of a company. If you sell a call without owning the 100 shares then you run the risk of having to purchase 100 shares at market price and give them up at the strike price of the contract. This introduces infinite risks and is not recommended.
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