How To Sell Covered Calls (Easy Monthly Income)
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- Опубліковано 22 сер 2024
- How to sell covered calls for passive monthly income - learn options trading
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Covered Calls:
When you own 100 shares of any company you can sell covered calls on your position and collect a payment called a premium simply for selling that option. This premium is paid to you by the person on the other side of the trade who is buying that option. Now it’s called covered calls because your position is covered by the 100 shares that you own. You are putting up the shares as collateral for this trade in case the trade goes against you and you are forced to sell your shares- You must have a collateral of 100 shares for each 1 option contract that you sell. So let’s say you own 100 shares of a stock and decide you want to sell a covered call on the stock. Here’s what’s going to happen step by step. You pick a strike price and expiration date for the option that you want to sell. The strike price must be higher than the current price of the stock. This is called selling Out-Of-The-Money Calls.
Company X is trading at $50 right now. I decide I am going to sell covered calls on my position so the first thing I have to do is choose a strike price I don’t think the stock will reach by a certain date. Let’s say by next month I don’t think company X will reach $55 which would be a 10% increase for the stock. So I pick to sell an option with a strike price of $55 and an expiration date of 1 month out. Once I sell this option a few things will happen. First the brokerage will put aside the 100 shares that I own as collateral for the trade. These are still my shares but I just can’t do anything with them before I exit out of my options trade. Secondly, I will get paid a premium for selling this option paid to me by the option buyer. Now this premium is put into my account right away. In this case lets say the premium is $2. I will get paid $200 because remember 1 option contract controls 100 shares so we multiply the premium by 100 for each contract - so boom I get paid $200 into my trading account.
Now at this point 1 of 3 things can happen with the trade.
Scenario #1 - the stock price does not reach the strike price by expiration. (That’s good)
Scenario #2 - the stock price reaches and exceeds the strike price by expiration (That’s bad)
Scenario #3 - You decided to close your position before expiration by buying back the contract and closing the trade.
Can you lose money selling covered calls? if you own stock and already are in the profit on your stock position then you CANNOT lose money selling covered calls and waiting until expiration. The worst thing that will happen is you’ll lose your shares - not lose them but be forced to sell them at the strike price. You might feel like you lost money if your stock shoots up way past the strike price - and you are forced to sell at a lower price - but you only lost the chance to make that extra profit. Remember, you should always sell calls at strike prices above where you bought the stock because then you’ll always be in the profit and whether or not your shares get called away you’d still make money
Do you get to keep the premium if your shares get called away? Yes - the premium gets deposited into your trading account right away and is yours to keep because you did not have to buy the option back. The option will be exercised and you’ll lose your shares but get to keep the premium.
What happens with my collateral - so when you put up collateral you can’t do anything with the shares until the option position is closed. The shares will be released back to you the day after the option expires or right away if you close your position early. Once you have your collateral back you can go ahead and sell another call using the same collateral for the next week or the next month.
Will I have to pay taxes on the premium I collect? Yes, simple answer - just like any trade, if you make a profit you will be subject to the all mighty short term capital gains tax so you’ll definitely want to keep that in mind and plan for that.
I am not a financial advisor - none of the above video is meant to be taken as investment advice. I am just showcasing MY own strategy and my investments should not be tried and duplicated based solely off the information in this video for risk of losing money.
As a beginner, I watched so many videos about buying/selling options and this is by far the best explanation ive ever seen. Im still confused at times but im gonna keep watchibg your videos to understand it more. Thanks.
You and me too like I get it!!!! But then I'm like stratching me head at another part of it....BUT WE GOT THIS!!!!!
Check out Tyrone Jackson's videos on covered calls. Pretty simple as well. I also think this video is really good too
I agree…. this is very good! Thank you!
Without a doubt, one of the BEST instructional videos on Covered Calls and especially on buying it back. Until now I've been sitting there hopelessly watching my stock increase beyond the strike price until it gets exercised. Now I know I could buy it back, at a price, still make the profit of the difference from the initial premium and sell it again for more premium. Thank you Alex.
Should probably mention that in scenario #2 you sell your shares at profit and still collect the premium so it's not exactly a loss. I don't like closing a trade before expiration unless the stock goes out of control. Pick a strike price at which you don't mind selling your shares for profit, then sell PUT and collect some premium to try and buy those shares back at a strike price that is less than you sold. Rinse and repeat. The wheel strategy is great.
Thanks so much! Yupp, I go over all that in the video. I plan on doing a video on the wheel sometime in the near future :)
Covered Calls are great for decreasing cost basis, especially when paired with Cash Secured Puts. Great introductory strategy for beginners!
Thanks Zack, that's right - so much possibility! thanks for watching :)
@@PandreaMoney could you please make a video about pairing with cash secured put !!!
Just search the wheel strategy for stocks. It just means to sell puts until assigned then turn around and sell calls after
Yep, it’s known as the Wheel Strategy. If you have some time, search a few articles or UA-cam Videos. Maybe you can get a little bit of insight before Alex makes a video about, assuming he decides to.
I remember having a consultation with a financial analyst last August, and it was incredibly insightful. Can’t stress enough how helpful experts in this field are!
Absolutely agree! A good financial analyst can make a world of difference. What specific insights did you gain?
Having Jonas Herman as my trade analyst, he has guided me to identify key market trends, pinpointed strategic entry points, and provided risk assessments, ensuring my trades decisions align with market dynamics for optimal returns.
That’s awesome! I’ve been contemplating hiring one since I can’t get a hang of trading even after buying courses. I’d like a discussion with him. Any means to reach him?
Hermanw jonas (a Gma!L comm
Is he taking commissions for his services? Yes, I’m I still making money in the process? Hell yes!
I started working with Jonas back in June, and my financial goals have never been clearer. It’s like having a strategic partner for your money with a solid track record.
You are an excellent teacher. You make options much easier to understand--step by step. Love your sincerity and your humor! Thank you so much!
Suggestion: include visualizations, ppt in your video. It’ll help in understanding the concept even better. Your content and the way you articulate is great
Your videos have broken down the option process so well, I’ve started selling covered calls and cash secured puts this month and was just wondering how to close a position, and woke up to this video. Thank you!
Lucky you that you can afford 100 shares. I'll be doing that when I'm 49...
Building wealth involves developing good habits like regularly putting money away in intervals for solid investments. Instead of trying to predict and prognosticate the stability of the market and precisely when the change is going to happen, a better strategy is simply having a portfolio that’s well prepared for any eventually, that’s how some folks' been averaging 150K every 7week these past 4months according to Bloomberg.
That’s crazy, I’m just doing everything wrong with my portfolio.
The US-Stock Mrkt had been on it’s longest bull-run in history, so the mass hysteria and panic is relatable considering we’re not accustomed to such troubled mrkts, but there are avenues lurking around if you know where to look. My wife and I are retiring this year with over $7,000,000 in tax deferred investments. up until 3 years ago we were 100% in the S&P. During bear markets we had a perfect plan. We got an investment manager in our corner and didn’t look at our portfolio for nearly a year.
Same here, 75% of my portfolio is in the red and I really don’t know how long I can stomach the losses. I’m beginning to reach a breaking point.
Patience patience patience. It's a cycle.... a sucky point in the cycle, but a cycle nonetheless.
Wow, that’s stirring! Do you mind connecting me to your advisor please. I desperately need one to diversified my portfolio.
I LOVE THAT YOU HAVE STARTED ADDING VISUALS TO THE VIDEOS! - keep it up Pandrea I love these videos - learning a lot :)
Five months from now I won't be able to understand shit what pandrea is saying in this video, I'm glad and proud of myself that i made a lot of progress in the world of options.. i understand everything in this video! I'm glad and happy and ready to make some money!! Thanks pandrea!!!
Ive been searching for this video for some time now... I bought so many other videos and UA-camrs explaining this and I may be only understood bits and pieces.... This is someone who knows it well enough to teach. I've always been told if you can't explain something easy enough to someone you don't know it well enough. Thank you for your video
Alex, where did you go?
You really simplify things for us so that everyone can understand. Please don't abandon us now.
I love your videos!
Exactly!! I just found this channel and its great!!!
I think he just became a father. He may not have a lot of time to keep up with his YT channel 😢
Alex, I never comment on trading-related videos because, frankly speaking, I do not understand them completely. It's the first time I have glued to your videos, 4th in succession in the last 2 hours (even writing my notes), and it's the first time, I can understand the concept and strategy both. Thank you so much. You are amazing.
I've been wanting to jump in for so long. all of these " options for beginners" videos I've been watching for about a year... SMH.... Finally I found your videos!!! Please let me just thank you from the bottom of my heart. for some reason this video just removed all fear ( within reason ) and I'm currently paused @ 13:51... just bought 100 shares and sold a call for the 16th of next month.. I FINALLY PULLED THE TRIGGER! i can't wait to get a couple little trials out of the way and hopefully be able to one day get out of the office and work from home just trading!
I have some experience in options trading and I like how you are not exaggerating expectations ! You’re keeping it real and that’s a lost art now and days . I am going to continue to watch your videos and others should too thanks. 🙏
Great breakdown dude. Do LEAPS together with PMCC next =) Would also love to hear your take on taxes on unrealized gains, as well as tips when trading options with earnings or ex-dividend dates in play. Would also love to see you do tutorials on some basic charting analysis. No pressure, haha!
Thanks so much! Yupp all that is on the list - wish I had time to do film all at once haha.
Since you started your channel, I've watched your videos and I have been doing cover calls now for about 2 months. I have collected and won the premium thanks to your teachings. Thank you for what you do sir.
So to get this right i have to purchase 100 shares of a certain stock to have collateral example apples worth $200 per share i would have to have bought $20000(100 shares)of apple for me to have as collateral?
Answer?
Hello I live here in California, I'm just using this means urge you seeing this to give a try and appreciate me later. I saw your comment and I decided to put this down to let you know about him, He guides me with the exact time frame to trade which I made about $5k after trading alone and I recovered my losses. His strategy is really good i'll highly recommend him to you...
Steven Kurt 32 at gmail .
Yes you are correct. Obviously, $20k is a lot of money, but you can also reduce this amount significantly by trading on margin. However, there are added risks when doing this, so be careful.
Thanks for the video. I'm not understand the part that Robinhood showed unlimited loss on screen?
You don't actually have unlimited loss potential when selling covered calls. But you still could lose a substantial amount of money in the worst case. For example, if the company goes bankrupt and the stock plummets to $0, you'll lose thousands of dollars.
This is great information and everything, but for those who are just starting out with a small portfolio, a lot of companies with stocks that are on the cheaper end, most options have a premium of $0.01, with the contracts that actually have a decent premium being extremely risky strike prices. Would you consider making a video with some company recommendations to start out with for those starting out with smaller portfolios?
Hi Archie - hmm, it really depends on the stock and the IV and time to expiration. For the ones you see with $0.01 you are looking at the closest expiration date and pretty far out-of-the-money. You also should look at the volume on that stock - maybe nobody is buyings/selling options in it. I have added your video request to my list :)
These are okay as a training too..
You may not like this answer, but this strategy is not for people with small portfolios. You need 10k+
Hey Alex, you have very helpful videos! I’m pretty new at this. I’ve been focusing on finding options with >80% profit and maximum premium, and choosing stocks under $5 to trade since I have a small portfolio. And I’m choosing 1 week to a month out for expiration. The problem is, I’ve been finding these great sells w/ high premiums and high chance of profit, but all my orders have gotten cancelled by the end of the day. Any insight on what’s happening would be really grateful!
@@jacobgreenberg5684 Crappy stocks have low liquidity, which means there isn’t much interest in people buying the options that you are selling. Don’t sell options until you can do it with real companies/ETFs
@Pandrea, thanks for the great video. This is the most simple and to the point explanation of options I found on UA-cam! Quick question - When the options expire and the stock price is above the strike price, Robinhood will automatically transfer my 100 shares to the seller I guess. But does Robinhood automatically transfer the money to my account? I should see $ 100* strike price in my account..right?
Thanks in advance :)
*Good stuff bud! Killed it with this one!*
one of the best videos on how to sell covered call options! 🔥 keep up the good work!
that was my goal! thanks so much!
Great video
"Buy back the contract"??? Man you just pistol whipped me with that one!! Nice Pandrea, keep the knowledge coming sir
😎
Mr. Pandrea: i just learned selling options for premium about 3 months ago. while i learned via 3 minute talk with my son, i realized after doing it there is more to it. That said, when selling covered calls, why doesn't anyone talk about when to and not to close a covered call when the stock tanks faster then expected. If the stock starts going down too fast and get past your breakeven, whats the best 'options' :/ at that point. ive just watched your covered call and your 101 to options and i look forward to more advanced learning and better understand IV. I sure would love to talk to you,i wonder if and how that is possible. thank you for your work, sincerely. sas
Very few people talk about it because that doesn't get views :) If all you talk about is how easy and simple and passive option selling is, then people will flock to your channel. But that is most certainly NOT how trading options is in reality. You are absolutely correct...there is considerable risk with selling covered calls because the stock could plummet drastically. So unless you don't want to hold the stock for the very long-term (in which case you don't care about short-term drops), then I would suggest having a stop loss in place.
When you made the trade and broke down what the -52 meant now I got it
You got the best covered call video on UA-cam that’s what I was waiting
Can you make a video where you show how to profit or passive Income from buying options? Or show how you would go about doing it if you were to do it. I love your videos but don't want to sell options as I don't have alot of money to be buying a hundred shares to be doing these covered calls and then lose them. I have made a couple thousand on buying options but that wasn't to say I lost money along the way as well (I lost 800 in a day) I just want to avoid making mistakes like that because to be honest I don't have a strategy I just buy what I can afford and hope for the best. Any advice would help Thanks and keep up the great work!!!!
There is no way to generate passive income when buying options. Time decay will always be working against your positions, slowly eating away at their value and generating losses. You need to be on the selling side of options for time decay to work in your favor.
this was very well explained…i havent sold options yet but im beginning to understand how it all works and i am building up my shares,i plan to start soon,i just want to learn as much as i can first,and this video was great. ill check your other vids. thanks man!
Hi Alex , this is one of the most informative options videos that i have seen . Thank You ! My question is this : i have a number of shares that i've bought before the pandemic and had not been able to dispose or let go as my position previously was to go long . Now , the value of the shares had drastically deteriorated because of the pandemic. In your video you said we should sell covered calls when we are making a profit off our collateral shares , mine on the other hand had been on the negative ... but i can still pick a strike price which i think the stocks will not hit within the expiration date that i may choose. Is that a safe trade and can i go ahead and do that so i can make money off my stocks that are negative while i wait for the recovery ? Hoping for a reply . Thx.
Hi alex. Thanks for the videos learning a lot.
The part that i am not understanding is scenario number 2.
You entered a contract and the strike stock price is higher than the current and its reached before expiration.
You end up selling the stocks at a higher price than you paid for in the first place plus keeping the premium.
I must have misunderstood.
Thank you for teaching options. I did not know anything about option trading at all. I started reading and watching videos on UA-cam. Until I found your channel I was lost. I guess I am a bit visual learner. You are the best of all of them. I mean it. You know how you say tick the like button, if I could I would hit it million times. Thats how helpful your videos. You seemed to stopped making videos over a year ago. I wish you start making videos again. Please come back. Best wishes.
Hi Dr. Pandrea, Is there day of the week that is best for selling options? Also, in a future video can you talk about 21 and 45 days to expiration (DTE)???
No difference in selling options on any day of the week. But it generally is better to sell options when implied volatility is elevated across the market...which usually occurs during a selloff. Higher implied volatility means higher option prices.
Best explanations I’ve found of all UA-camrs, ty so much
hey alex, i love how you incorporated a live example of the topic. Please do that more often and also,
I would love to see some videos about buying calls/puts live. Thanks.
Thank you! This video showed me exactly how to sell covered calls I really appreciate it. I’d been looking for a long time to find how to exactly do this
Hey I love the videos, I just had a question about selling covered calls, when you pull up the order form, it says there’s a bid and an ask, you didn’t really go over what those were in the real time example but the ask always seems to be over the bid. When selling the contract, can you put the ask price in first instead of the bid? Why’d you put the bid price when selling it and the ask price when buying it? Can you choose to put the ask price in when selling it since it’s always higher?
The Bid price is the highest price someone in the market is currently willing to pay for the option. And the Ask price is the lowest price someone is willing to sell the option. Generally, you should place an order with a Limit price that is right between the Bid and Ask. In most cases, someone will be willing to meet you halfway. If not, then slowly change your Limit price to get closer to either the Bid or Ask (depending on if you are buying or selling). Selling right at the Bid or buying right at the Ask is not a good idea because you are literally giving away a few extra dollars by doing so.
Great explanation.
Such a great teacher, Alex! Just found your videos and impressed by your passion to teach whatever you can with so much determination!! You really care and it shows!! Thank you for your hard work! This stuff is confusing but I’m sure with more understanding it will sink in more. Again, thanks!! 👍🎉
If you buy back a covered call for a premium higher than what you originally made because it is in the money is that treated as a loss?
Yes, but this will generally only happen if the stock price has increased as well. So you'll lose money on the Call but should make a lot more in profits from the long 100 shares of stock.
Day trading gives me great returns weekly and anyone can take advantage too but there are restrictions that could limit one from achieving this so I use an expert while I earn thanks to the AI technology on the platform
Great, but how is done? I will like to know how to begin also
I have done very well by trading Stock options as well as using simple covered calls and married puts.
Many people have become millionaires trading because with the leverage invovled in trading, people can make a fortune or lose it all very quickly so you need care
@@Ahmad-b9q5x I don't trade myself as I mentioned earlier I use an expert for that Mr ravies Benjamin which is why I earn because of his outstanding strategies
@@Pauliy1 please can I have a way to connect him
Very informative and optimistic to watch. I'd love a video on buying short term puts. You kind of touch on the other side of the trading mirror with this analysis I guess.
Thanks for explaining the bids and asks, next up please cover open interest/high liquidity how important it is, if it at all, I'd love to see a breakdown of that.
Hello I live here in California, I'm just using this means urge you seeing this to give a try and appreciate me later. I saw your comment and I decided to put this down to let you know about him, He guides me with the exact time frame to trade which I made about $5k after trading alone and I recovered my losses. His strategy is really good i'll highly recommend him to you...
Been binging Robinhood options videos for several days. This was by far the best example.. Thank you.
Great video, I love this type of easy to understand content. Especially when it comes to options and covered calls! Keep it up!
Watching this video for the third time and I finally understand. I've started with paper trading on TOS and am looking forward to the day I can start selling calls on a live account!
Paper trading first is a very smart move, especially in this current market! Best of luck to you, Marcus :)
Love your content bro, I really like the live trade demonstration!
Thank you Juan! I will do more of those then! :)
Sometimes, I like to purchase a call option, to protect my upside, on my covered call, to help maximize my profit!
What do you suggest buying 100 shares of with a smaller (around $3k) account?
Nothing...save more money first before using covered calls. Even buying 100 shares of a $5 stock will cost $500...which is over 15% of your total capital. That's way too much risk for a single position. Ideally, you should not be allocating more than 5% of your capital for one trade.
Can I let my sell/call or sell/put expire whether if its In the money or out of the money?
No reason why you can't do this, but it can be dangerous to hold short contracts through expiration if assignment is NOT part of the plan. I have a video that takes a deep dive into this topic if you're interested...
ua-cam.com/video/BfJ476APKjA/v-deo.html
Excellent tutorial. I love how complete this video, covering the end to end process. Very well done, thank you.
I have been unlucky few times selling covered call against some of my favorite stocks that shot up just as I entered into the agreement (but before that, it was moving sideways, DOH). But of course I could always buyback but hurt my ego of losing out that cost basis I used to brag about and of course the stock shotup higher. 😅😆
Not much, how about you?
Thanks for the great content, your a great teacher. I've been watching videos on options for weeks now and you explain it the best. Thanks!
The best Teacher on earth.Thankssss .
not sure which is better, your teaching skills or your entertainment. nice to have both.
Good info. I was waiting to see the third case when the strike price is crossed and the buyer exercises the buy option. What happens to the collateral? Is there any action to be taken by seller or does the exchange automatically sells the share from our account
Such a great video of explaining this.. have watched SOOOO many and options are so confusing... You def clarified it.. thanks so much 💸💸
Thank you. You have the best videos on teaching options!
Thanks for another great content. I started trading covered calls thanks to you. It is a great way to generate extra income passively. I can't wait for more options strategies you can share in the future!
Hi Alex, I purchased my first covered calls today🥳 Thank you for your video, I made a mistake at the beginning, but then I went back and followed the step you showed to buy back the contract! YEAH!!! I am so exited, Thank you. I hope your income and followers multiply 1 Million times :) Next. I will buy a spread call, if you can make a video on that, that will be fantabulous ! Thanks again, you rock.
Oh…my…gosh…he explained this like I was 5 years old. What an amazing tutorial! Such a good video
Nicely done!! thank you for a example I can actually follow.
thanks for the video. i have a question:
1- if i buy 100 shares of XYZ at a price of 50$ and right away sell a covered call with a strike price of 55$, when the share price reaches to 55$ at the expiration what is my loss? i lose my shares but still keep the premium received at the beginning ? thats the total loss, shares?
2- share prices goes to 60$ at the expiration, what is my loss? shares + potential roi ? in this case 1000$ or 1000$ - premium ?
tia
Great Video and finally, the first time I've seen one (and I've watched hours and hours of these trying learn) that mentions taxes. I've been selling covered calls inside of my ROTH IRA so I think I'm insulated from all capital gains but of course I also can't write off any losses; though there really aren't any so I hope I'm right on this point. Thanks.
Dude! we asked, you answered. You actually made a killer video showing exactly how, on the app, you get out of a open options position. BEST video yet. THANK YOU 🙏🙏🙏🙏🙏🙏🙏
THANK YOU! haha yea I got so many comments on that and started planning the video right away :) I appreciate the kind words my friend
Great video been trying to understand options you broke it down perfect but how come you can't sell options on every stock ?
Thank you for your content. Very helpful. Quick question, if you had $2K cash, how would you go about purchasing stocks in 100 share increments to then be able to sell options? Any tips or suggestions? How would you go about it? Thank you!
You find a stock you would like to buy and have the money in your account you sell a put at the strike you would like to buy the stock at , you collect the premium and when the stock drops to that strike you get assigned to buy it at that price but pay for it even cheaper because you collected a premium
To be honest, you need more capital before you can realistically start selling covered calls. Even buying 100 shares of a $5 stock will cost $500...which is 25% of your entire account. This is WAY too much risk for a single position. Ideally, your trade size should be under 5% of your total account capital.
@@scottreesetradinginvesting7936 if he’s selling covered calls he can’t really “lose” money though right?
@@nerew987 Of course you can lose money…there’s actually a risk of losing a lot in some cases. If the stock plummets substantially by the expiration date, you’ll still keep the Call premium, but you’ll be down a lot more than that amount on the stock position. So the combined result is you’ve lost money. Moreover, if the stock falls too far, you won’t be able to sell another Call with a strike above your cost basis on the shares. At that point, you are at the mercy of the stock to hopefully recover (which may never happen or not for a very long time).
So this might sound like a dumb question but I’m going to ask anyway. So should I not trade options unless I have 100 shares of atleast one or some stocks?
For selling covered calls, yes. But there are plenty of other options trading strategies that do NOT require any stock position and use significantly less capital. Have a look at credit spreads, debit spreads, and iron condors!
hi pandrea
If we max out holding the contract till expiry and the strike price is still above the current price do we get to keep the full premium ? as no action is required to purchase a call option to close the position.
Yes, you are correct. As long as you hold the position to expiration, you actually keep the full premium no matter what...regardless of where the stock ends up.
I am learning so much from you, thank you. If covered call sell is in the money I will receive the price back but not as high as the market at the moment may be, yes? Did I understand correctly?
The last tip blew my mind. If your down on the stock sell covered calls worst thing that happens is they called away for a higher price 💡
Alex, your videos are awesome. I’ve been looking for simple explanations of how options work and had yet to find one until I stumbled on yours. Thank you, sir!
Uncle Henry has great and easy explanation as well
This is one of the best videos I’ve ever seen on explaining a difficult concept. Thank you!
Question: I sold a call of a stock at 65, the stock is now 65.50. Why haven’t my shares been called away? Does the buyer have until the expiration date to call away my shares?
I’ve been doing covered call with Apple, Sofi & Bank of America. Hopefully, I’ll quit my full time Job within few years & become a full Time Option Trader 😎. I started an online business & trying to learn more about that too. My goal is to become financially freedom as soon as possible 😎
That's amazing! Good luck my friend - keep learning and training - you will get there!
What a will explained video I swear you can teach a lot better then any other UA-camrs
Thanks so much! I spend a lot of time planning and making sure the video is structured properly. Guess its working :)
You are gift from heaven, I spent tons of money just to understand concepts no one made this easy. Thank s giving back and I’ll pay forward :) to poor brother or sister like me.
How do you go about choosing what company to sell calls from? Like, what do you look at to say ok I'll buy the 100+ shares from this company to sell covered calls from them?
You need a logical rationale as to why you think the stock price will increase over time (since a covered call is a bullish strategy). And you should look for such stocks with high implied volatility (ideally above 40% to 50%). High implied volatility will make the prices of the options very expensive...and therefore worth selling.
@@scottreesetradinginvesting7936 Very helpful, especially as I am just beginning to learn. Thanks!
@@Kittehsmahname101 You're welcome! Best of luck to you :)
Thanks Alex! I found so much value in this video and am more confident in Selling Options! Also FYI to always save your profits before tax season - CA 6% + FED 22% capital gain tax.
Thanks for explaining this so simply! I guess when i have more money I can do more purchases of shares and sell as calls
So what is the benefit for the suckers as they have been painted to be on the other ends of these trades? Why do they pay premiums for losing percentage trades?
Because those suckers are either uniformed or are trying to go for the home run trade lol
Appreciate the break down and the live example to close position🤙🏾
I appreciate you watching my friend!
God bless you!! You just changed my life!! I’ve been doing it for three months and I’ve made pretty good money selling option, thank you so much!
By far the best explanation video , thanks a lot. I know how busy you are or if anyone can answer this ; why is it that when I enter to sell a call it dosent seem to be asking me for collateral? Like it seems it lets me sell the call without having enough (100 shares or the cash)
If you choose a strike price above the price you paid for the stock, don’t you still “win” even if the stock goes up past that because you get paid more for the stock than you bought it for, plus you keep the premium from selling the option?
Great video. Just started today I’m pumped.
How do you create a limit sell order if the bid for the premium is zero?
In most cases, someone will be willing to buy the contract for at most $0.01, but if not, you may just have to let the option expire worthless.
very simple way to explain,appreciate your content.
This was great. Thank you so much. I plan to attempt my first selling pf a covered call when the market opens In a few hours. I've watched tons of videos on this and this was the first one that not only made sense but walked us through an example as well.
Hey Alex, thanks a lot for your cool video!!! I have a question regarding scenario #2. What happens if the price exceed the strike price before the expiration date? you could be forced to sell your shares before the expiration date? Is this right?
Hi my friend - technically yes that can happen but realistically it doesn't - the reason is that the buyer would just sell the contract further rather than exercise the shares because he would be losing money if he exercised. Think of it from your point of view when you buy options. Your contract is now in-the-money...well are you going to exercise your shares and lose the extrinsic value of the contract? Most likely not. I have never been forced to sell shares early. Hope that helps!
Sorry for my ignorance but trying to learn the best I can
I've watched countless videos and am still a little confused on the risk of a CC
If a company is selling at $100 and I set my strike price to $105, if at the end of the month it goes to $108, do I lose my 100 shares? do I still keep my premium?
If at the end of the month, the share price is at $97, do I keep my 100 shares? do I lose my premium?
When do you actually LOSE money? I get in the first scenario, you lose the "opportunity" to make more, but you technically don't really lose anything, right?
Thanks!
As long as you hold the entire position to expiration, you ALWAYS keep the full Call premium...regardless of where the stock ends up. If the stock expires at $108, then yes you would lose your 100 shares...but if you bought them initially at $100 and were forced to sell at $105, that would be a profit of $500...PLUS the Call premium. If the stock plummets, however, that's where you will lose significant money. Keeping the Call premium will help offset losses to some degree, but you do have naked downside risk when selling covered calls.
Great tutorial. Stopped my head from spinning after I watched dozens of other videos. This is what I've been looking for. After a few "practice", low risk trades, I will return and watch more in depth training. Thank very much!!!!
I've learned a lot. Thank you Pandrea Finance.....
Is the % chance the same as delta?
Dividend question so say you sell a put on a stock during a dividend pay out where does the dividend go?
Can you use cash as collateral when selling calls? Or is that only with puts?
Only with puts. To sell covered calls, you need to own 100 shares of stock.
hy alex how are you doing ?
i was wondering what's happening if the person who is buying the option decide to close the contract before expiration date ? do we have to sell our shares ? do we keep our premium ?
Thganks in advance.
If the person who bought your contract initially decides to sell it, the option will just go to a new owner. Nothing about your position will change.
I bought some leap calls deep in the money after watching one of your video, I have been selling cover calls using those leap calls as collateral. Is this a good idea or is their a greater risk that I may not been seeing. This seems like a easy way to make money. I am new to option so sorry if this is a dumb question.
Definitely not a bad strategy by any means...the short calls will serve to offset the time decay on the LEAP which is great. The major risk is selling a call with a strike too close to your LEAP strike...and therefore if you get assigned on it, you would lose money on the overall position. So make sure to calculate ahead of time what the final outcome of the trade would be if you did get assigned BEFORE you sell that shorter term call.
It might be a stupid question but what if stock price is actually down from the price when I make a covered call?
It absolutely matters where the stock price ends up. If the stock price plummets by expiration, you will still keep the full Call premium, but you'll be down on the overall position.
1) What if the stock tanks and you are left holding the bag? You can't start selling the CC until the stock comes back up
2) CC only work in a choppy market; In a rising market buy and hold beats selling CC by huge margin. If the stock tanks as I mentioned above, the strategy of selling CC has to be put on hold
My problem with selling CC for income is precisely this risk of stock tanking. You might know that QYLD (index that sells CC on QQQ) fares much worse compared to simple buy and hold of QQQ.
I don't think you quite understand CC's. If a stock tanks your CC goes up in value, and you can sell CC's regardless of whether the stock is up or down (the premiums will just be less if the stock is trending downward).
As for the stock tanking, that's the risk of all stocks; there's always a possibility of it going down. That's nothing specific to CC's. For the income part, he mentions how you don't want your CC to be assigned; there's nothing stopping you from buying and holding shares and selling CC's well outside the money (whatever you're comfortable with) to generate income. It won't be as high of premiums, but it's essentially free money with very minimal risk (for non-volatile stocks).
And this is exactly why selling covered calls is not an "income" strategy! :) Drives me crazy when people call it that...there is ALWAYS risk with this strategy as you explained. And you will most certainly lose money at some point...which is the opposite of income lol
Great video. Thanks! Question: what happen if i sell a call, 1 month timeframe, and the stock prices goes above my strike price one week after? But then, by the expiration date goes down below the strike price? My question is, am i screwed if the stock price goes above the strike price at any time before the expiration date??
No. While there is always a chance that the buyer of the Call could exercise it early if the option goes in the money, this is super unlikely unless there is no extrinsic value remaining in the contract. I have a video that takes a deep dive into this topic if you're interested....
ua-cam.com/video/CX9B-qPJmMM/v-deo.html
Great video , how do you determine which stocks Kay the highest premiums though ?
Great clarity. Thank you.
If you buy a leap call option would that be collateral for selling a call option?